[ G.R. No. 226894, September 03, 2020 ]
the amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS
KAIZEN BUILDERS, INC. (FORMERLY KNOWN AS MEGALOPOLIS PROPERTIES,
INC.) AND CECILLE F. APOSTOL, PETITIONERS, VS. COURT OF APPEALS AND
THE HEIRS OF OFELIA URSAIS, RESPONDENTS.
[G.R. No. 247647]
KAIZEN BUILDERS, INC. (FORMERLY MEGALOPOLIS PROPERTIES, INC.) AND
CECILLE APOSTOL, PETITIONERS, VS. HEIRS OF OFELIA URSAIS, NAMELY,
ROGELIO A. TOMAS, ROSLYN T. BOSING, VANESSA T. PEDEGLORIO, GUNTER
U. TOMAS AND JORDAN U. GAMALINDA, RESPONDENTS.
DECISION
LOPEZ, J.:
The nature and effects of a suspension order are the core principles applied in this
consolidated petitions assailing the Court of Appeals' (CA) Resolution1 dated
December 8, 2015 and Decision2 dated October 1, 2018 in CA-G.R. CV No. 102330.
ANTECEDENTS
In 2004, Ofelia Ursais (Ofelia) purchased from Kaizen Builders, Inc. (Kaizen builders)
(formerly Megalopolis Properties, Inc.) a house and lot situated in White Pine Street,
Camp 7, Baguio City.3 In 2007, the parties executed a contract to sell where Kaizen
Builders bought back from Ofelia the property for P2,700,000.00 and swapped it with
another house and lot in Kingstone Ville, Camp 1, Baguio City. They deducted from the
price the P300,000.00 unpaid balance of Ofelia in White Pine property and the
P2,200,000.00 value of Kingstone Ville property. The remaining P200,000.00 shall be
paid in cash. Later, the parties replaced the contract to sell with another agreement
where Ofelia invested the P2,200,000.00 in Kaizen Builders' development of the
Kingstone Ville project.4 In 2008, however, the parties rescinded the investment
agreement where Ofelia received P320,000.00 from Kaizen Builders. The parties then
stipulated that the amount of P380,000.00 will be paid on installment basis while the
remaining P1,500,000.00 shall bear an interest of 1.5% or P22,500.00 per month.5
Despite repeated demands, Kaizen Builders stopped remitting the monthly interest
beginning November 2009 and refused to deliver the P380,000.00.6 In 2011, Ofelia
filed against Kaizen Builders and its chief executive officer Cecille F. Apostol (Cecille)
a complaint for sum of money before the Regional Trial Court (RTC) docketed as Civil
Case No. 7426-R.7 On May 8, 2013, the RTC in its Decision8 ordered Kaizen Builders
and Cecille solidarity liable to pay Ofelia the following amounts, to wit:
WHEREFORE, all the foregoing premises considered, the Court rules in favor of
plaintiff OFELIA URSAIS. Defendants MEGALOPOLIS PROPERTIES
INCORPORATED and CECILLE F. APOSTOL are solidarily liable to pay the Plaintiff
the following:
1.
(P1,500,000.00), which is the amount invested by Plaintiff Ursais, with legal
interest to be computed from June 17, 2009 until the same is fully paid; and
2. the amount of ONE HUNDRED SEVENTY-EIGHT THOUSAND SEVEN
HUNDRED FIFTY PESOS (P178,750.00), as previously computed,
representing the unpaid interest of 1.5% per month or P22,500.00 from
October 2009 until June 2010, with legal interest to be computed from June
17, 2010 until the same is fully paid.
The parties bear their own cost, of suit and attorney's fees, considering the absence of
bad faith and fraud, moral and exemplary damages is [sic] not awarded.
SO ORDERED.9
Ofelia sought partial reconsideration claiming that the RTC failed to include the P3
80,000.00 and the payment of monthly interest up to the present. Later, Ofelia died and
was substituted by her heirs. On November 15, 2013, the RTC granted the motion and
amended its Decision,10 thus:
WHEREFORE, all the foregoing premises considered, the dispositive portion of the
assailed Decision of the Court is amended as follows:
Defendants MEGALOPOLIS PROPERTIES INCORPORATED and CECILLE F.
APOSTOL are held solidarity liable to pay the Plaintiff Heirs of Ofelia Ursais the
following:
1. the amount of ONE MILLION FIVE FIUNDRED THOUSAND PESOS
(P1,500,000.00), which is the amount invested by Plaintiff Ursais, with legal
interest to be computed from June 17, 2010 until the same is fully paid;
2. the amount of THREE HUNDRED EIGHTY THOUSAND PESOS
(P380,000.00) as contained in their Rescission Agreement dated July 25,
2008, with legal interest to be computed from July 25, 2008 until the same is
fully paid; and
3. the amount of ONE HUNDRED SEVENTY-EIGHT THOUSAND SEVEN
HUNDRED FIFTY PESOS (P179,750.00), as previously computed,
representing the unpaid interest of 1.5% per month or P22,500.00 from
October 2009 until June 2010, with legal interest to be computed from June
17, 2010 until the same is fully paid.
The parties bear their own cost of suit and attorney's fees. No award as to moral and
exemplary damages.
SO ORDERED.11
Aggrieved, Kaizen Builders and Cecille elevated the case to the CA docketed as CA-
G.R. CV No. 102330. Meantime, Kaizen Builders filed before the special commercial
court a petition for corporate rehabilitation docketed as Special Proceedings Case No.
2466-R. On August 12, 2015, the rehabilitation court issued a Commencement
Order12 which consolidated all legal proceedings by and against Kaizen Builders and
suspended all actions for the enforcement of claims against it.
Accordingly, Kaizen Builders and Cecille moved to consolidate the appealed case with
the rehabilitation proceedings. On December 8, 2015, however, the CA denied the
motion and explained that the appeal would not affect the rehabilitation case since the
two proceedings involved different parties, issues and reliefs.13 Unsuccessful at a
reconsideration,14 Kaizen Builders and Cecille filed a Petition for Certiorari and
Prohibition15 under Rule 65 before this Court docketed as G.R. No. 226894. They
argued that the CA acted with grave abuse of discretion in denying the motion for
consolidation and prayed that the proceedings before the CA be suspended within the
duration of the rehabilitation case.
On February 14, 2018, the CA resolved to hold in abeyance the proceedings in CA-
G.R. CV No. 102330. Yet, the resolution was subsequently recalled.16 On October 1,
2018, the CA rendered a Decision17 on the merits of the appeal, viz.:
WHEREFORE, premises considered, the instant appeal is PARTIALLY GRANTED.
Accordingly, the 8 May 2013 Decision and the 15 November 2013 Order of the Regional
Trial Court of Baguio City, Branch 60, in Civil Case No. 7426-R
are AFFIRMED with MODIFICATION such that the appellants are hereby ORDERED
to pay the plaintiffs-appellees the following:
1. One Million Five Hundred Thousand Pesos (Php 1,500,000.00) with legal
interest of twelve percent (12%) per annum to be computed from 1 July 2010
to 30 June 2013 and legal interest of six percent (6%) per annum from 1 July
2013 until this Decision becomes final and executory. The sum of the interests
shall be subject to interest of twelve percent (12%) per annum to be computed
from the date of judicial demand, or from 7 May 2012, to 30 June 2013 and
interest of six percent (6%) per annum from 1 July 2013 until this Decision
becomes final and executory, as interest due earning legal interest;
2. Three Hundred Seventy Five Thousand Pesos (Php 375,000.00) with legal
interest of twelve percent (12%) per annum to be computed from 7 May 2012
to 30 June 2013 and legal interest of six percent (6%) per annum from 1 July
2013 until this Decision becomes final and executory. The total of the interests
shall be subject to interest of twelve percent (12%) per annum to be computed
from the date of judicial demand, or from 7 May 2012, to 30 June 2013 and
interest of six percent (6%) per annum from 1 July 2013 until this Decision
becomes final and executory, as interest due earning legal interest;
3. One Hundred Seventy Eight Thousand Seven Hundred Fifty Pesos (Php
178,750.00) with legal interest to be computed from 1 July 2010 to 30 June
2013 and legal interest of six percent (6%) per annum from 1 July 2013 until
this Decision becomes final and executory. The total of the interests shall be
subject to interest of twelve percent (12%) per annum to be computed from
the date of judicial demand, or from 7 May 2012, to 30 June 2013 and interest
of six percent (6%) per annum from 1 July 2013 until this Decision becomes
final and executory, as interest due earning legal interest; and
4. Interest of six percent (6%) per annum on the total of the above monetary
awards from the finality of this Decision until full payment thereof.
SO ORDERED.18
Dissatisfied, Kaizen Builders and Cecille filed a Petition for Review
on Certiorari19 under Rule 45 docketed as G.R. No. 247647 on the ground that the CA
committed reversible error in holding them liable to pay Ofelia's heirs.
RULING
It is the policy of the courts to consolidate cases involving similar parties and affecting
closely related subject matters. The purpose of this rule is to settle the issues
expeditiously and to avoid multiplicity of suits and the possibility of conflicting
decisions.20 Here, the petitions in G.R. Nos. 226894 and 247647 involve similar parties
and common questions of law and fact. Hence, it is imperative upon this Court to
consolidate these cases. As will be discussed, the petitions are dependent on each
other such that the Decision in G.R. No. 226894 is determinative of the outcome in G.R.
No. 247647. Specifically, in G.R. No. 226894, Kaizen Builders and Cecille ascribed
grave abuse of discretion on the CA in not consolidating CA-G.R. CV No. 102330 with
Special Proceedings Case No. 2466-R or at least suspending the decision on the merits
of the appeal pending the rehabilitation case. We find merit in this argument.
Republic Act (RA) No. 10142 or the Financial Rehabilitation and Insolvency Act of 2010
statutorily defined "rehabilitation" as the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated.21 Case law explains that rehabilitation is an attempt to
conserve and administer the assets of an insolvent corporation in the hope of its
eventual return from financial stress to solvency.22 A corporate rehabilitation case is a
special proceeding in rem23 where the basic issues concern the viability and
desirability of continuing the business operations of the distressed corporation.24 The
purpose is to enable the company to gain a new lease on life and allow its creditors to
be paid their claims out of its earnings.25 The rationale is to resuscitate businesses in
financial distress because assets are often more valuable when so maintained than
they would be when liquidated.26
To achieve these objectives, Sections 16 and 17 of RA No. 10142 authorizes the
rehabilitation court to issue a Commencement Order that includes a Stay Order, which
have the effects of suspending all actions for the enforcement of claims against the
debtor and consolidating the resolution of all legal proceedings by and against it, to wit:
SECTION 16. Commencement of Proceedings and Issuance of a Commencement
Order. — The rehabilitation proceedings shall commence upon the issuance of
the Commencement Order, which shall:
xxxx
(q) include a Stay or Suspension Order which shall:
1) suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;
xxxx
SECTION 17. Effects of the Commencement Order. — Unless otherwise provided for
in this Act, the court's issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof:
xxxx
(e) consolidate the resolution of all legal proceedings by and against the debtor to the
court: Provided, however, That the court may allow the continuation of cases in other
courts where the debtor had initiated the suit.
Attempts to seek legal or other recourse against the debtor outside these proceedings
shall be sufficient to support a finding of indirect contempt of court. (Emphases
supplied.)
Indeed, an essential function of corporate rehabilitation is the mechanism of
suspension of all actions and claims against the distressed corporation.27 Notably, RA
No. 10142 makes no distinction as to the claims that are suspended once a
Commencement Order is issued. Apropos is Section 4(c) which provides an all-
encompassing definition of the term "claim," thus:
SECTION 4. Definition of Terms. — As used in this Act, the term:
xxxx
(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to: (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors or third parties
from filing cases against the directors and officers acting in their personal capacities.
(Emphases supplied.)
To clarify, however, creditors of the distressed corporation are not without remedy as
they may still submit their claims to the rehabilitation court for proper consideration so
that they may participate in the proceedings, keeping in mind the general policy of the
law to ensure or maintain certainty and predictability in commercial affairs, preserve
and maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are similarly
situated. In other words, the creditors must ventilate their claims before the
rehabilitation court. Any attempt to seek legal or other resource against the distressed
corporation shall be sufficient to support a finding of indirect contempt of court.28
Thus, the Commencement Order shall direct all creditors to file their claims with the
rehabilitation court at least five days before the initial hearing.29 A creditor whose claim
is not listed in the schedule of debts and liabilities and who fails to file a notice of claim
in accordance with the Commencement Order but subsequently files a belated claim
shall not be entitled to participate in the rehabilitation proceedings but shall be entitled
to receive distributions arising therefrom.30 The 2013 Financial Rehabilitation Rules of
Procedure or A.M. No. 12-12-11-SC echoed the manner of filing the creditors' claims,
to wit:
RULE 2
COURT-SUPERVISED REHABILITATION
xxxx
B. Provisions Common to Voluntary And Involuntary Proceedings/Action On Petition
And Commencement Proceedings
xxxx
SEC. 12. Notice of Claim. — Every creditor of the debtor or any interested party whose
claim is not yet listed in the schedule of debts and liabilities shall file his verified notice
of claim not later than five (5) days before the first initial hearing date fixed in the
Commencement Order.
If a creditor files a belated claim, he shall not be entitled to participate in the proceedings
but shall be entitled to receive distributions arising therefrom if recommended and
approved by the rehabilitation receiver, and approved by the court.
xxxx
SEC. 14. Action at the Initial Hearing. — After making a determination that the
jurisdictional requirements have been complied with, the court shall:
(A) determine the creditors who have made timely and proper filing of their notice of
claims and issue an order that the creditors not named therein shall not be entitled to
participate in the proceedings but shall be entitled to receive distributions arising from
the proceedings;
xxxx
Verily, the reason behind the imperative nature of a stay order in relation to the
creditors' claims cannot be downplayed. The indiscriminate suspension of actions for
claims is intended to expedite the rehabilitation of the distressed corporation. It enables
the management committee or the rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company. To allow such other actions to continue
would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the
corporation.31 Corollarily, the date when the claim arose, or when the action was filed,
has no bearing at all in deciding whether the action or claim is suspended. The stay
order embraces all phases of the suit,32 except in those instances expressly mentioned
in Section 18 of RA No. 10142, viz.:
SECTION 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension
Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of
commencement date: Provided, That any final and executory judgment arising
from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a
specialized court or quasi-judicial agency which, upon determination by the
court, is capable of resolving the claim more quickly, fairly and efficiently than
the court: Provided, That any final and executory judgment of such court or
agency shall be referred to the court and shall be treated as a non-disputed
claim;
(c) to the enforcement of claims against sureties and other persons solidarity
liable with the debtor, and third party or accommodation mortgagors as well
as issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities entrusted to
the latter in the ordinary course of the latter's business as well as any action
of such securities market participant or the appropriate regulatory agency or
self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement for the settlement
of securities transactions in accordance with the provisions of the Securities
Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of
a clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions of such agencies
or entities to reimburse themselves for any transactions settled for the debtor;
and
(g) any criminal action against the individual debtor or owner, partner, director
or officer of a debtor shall not be affected by any proceeding commenced
under this Act. (Emphasis supplied.)
In Lingkod Manggagawa sa Rubberworld, Adidas-Anglo v. Rubberworld (Phils.)
Inc.,33 this Court affirmed the CA's finding that the Labor Arbiter and the National Labor
Relations Commission committed grave abuse of discretion when they proceeded with
the unfair labor practice case that the petitioner filed against the respondent despite the
Securities and Exchange Commission's suspension order. In that case, the decisions
and orders of the labor tribunals are void and could not have achieved a final and
executory status, thus:
Given the factual milieu obtaining in this case, it cannot be said that the decision of the
Labor Arbiter, or the decision/dismissal order and writ of execution issued by the NLRC,
could ever attain final and executory status. The Labor Arbiter completely disregarded
and violated Section 6(c) of Presidential Decree 902-A, as amended, which
categorically mandates the suspension of all actions for claims against a corporation
placed under a management committee by the SEC. Thus, the proceedings before the
Labor Arbiter and the order and writ subsequently issued by the NLRC are all null and
void for having been undertaken or issued in violation of the SEC suspension Order
dated December 28, 1994. As such, the Labor Arbiter's decision, including the
dismissal by the NLRC of Rubberworld's appeal, could not have achieved a final and
executory status.
Acts executed against the provisions of mandatory or prohibitory laws shall be void,
except when the law itself authorizes their validity. The Labor Arbiter's decision in this
case is void ab initio, and therefore, non-existent. A void judgment is in effect no
judgment at all. No rights are divested by it nor obtained from it. Being worthless in
itself, all proceedings upon which the judgment is founded are equally worthless. It
neither binds nor bars anyone. All acts performed under it and all claims flowing out of
it are void. In other words, a void judgment is regarded as a nullity, and the situation is
the same as it would be if there were no judgment. It accordingly leaves the party-
litigants in the same position they were in before the trial.34 (Emphases supplied;
citations omitted.)
Likewise, in La Savoie Development Corp. v. Buenavista Properties, Inc.,35 the
respondent filed a complaint for termination of contract and recovery of property with
damages against petitioner before the RTC of Quezon City. Meantime, the petitioner
filed rehabilitation proceedings before the RTC of Makati City which issued a
suspension order. The petitioner then informed the RTC of Quezon City about the order
but it had already decided the complaint. Thereafter, the judgment became final and
executory. Later, the RTC of Makati City approved a rehabilitation plan which reduced
the penalty stated in the decision of the RTC of Quezon City. Undaunted, the
respondent questioned the reduction of penalty and argued that the RTC of Makati City
cannot amend the final decision of the RTC of Quezon City. The respondent insisted
that the cram down power of the rehabilitation court is irrelevant and inapplicable. In
that case, we held that a decision rendered in violation of a stay order did not attain
finality, viz.:
We see no reason not to apply the rule in Lingkod in case of violation of a stay order
under the Interim Rules.Ꮮαwρhi৷Having been executed against the provisions of a
mandatory law, the QC RTC Decision did not attain finality.
xxxx
Necessarily, we reject respondent's contention that the Rehabilitation Court cannot
exercise its cram-down power to approve a rehabilitation plan over the opposition of a
creditor. Since the QC RTC Decision did not attain finality, there is no legal impediment
to reduce the penalties under the ARRP.
Further, we have already held that a court-approved rehabilitation plan may include a
reduction of liability. x x x. (Emphasis supplied.)
Here, it is undisputed that Kaizen Builders filed a petition for corporate rehabilitation.
Finding the petition sufficient in form and substance, the rehabilitation court issued a
Commencement Order on August 12, 2015 or during the pendency of the appeal in
CA-G.R. CV No. 102330. Yet, the CA proceeded with the case and rendered judgment.
On this point we find grave abuse of discretion. To reiterate, the Commencement
Order ipso jure suspended the proceedings in the CA at whatever stage it may be,
considering that the appeal emanated from a money claim against a distressed
corporation which is deemed stayed pending the rehabilitation case. Moreover, the
appeal before the CA is not one of the instances where a suspension order is
inapplicable. The CA should have abstained from resolving the appeal.36 Taken
together, the CA clearly defied the effects of a Commencement Order and disregarded
the state policy to encourage debtors and their creditors to collectively and realistically
resolve and adjust competing claims and property rights.37 Applying the
pronouncements in Lingkod Manggagawa sa Rubberworld and La Savoie
Development Corp., the CA's Resolution dated December 8, 2015 and Decision dated
October 1, 2018 in CA-G.R. CV No. 102330 are void for having been rendered with
grave abuse of discretion and against the provisions of a mandatory law. With findings
warranting the grant of the petition for certiorari and prohibition in G.R. No. 226894,
there is no more reason for this Court to decide the petition for review in G.R. No.
247647 sans a valid judgment.
FOR THESE REASONS, the Petition for Certiorari and Prohibition in G.R. No. 226894
is GRANTED. The Court of Appeals' Resolution dated December 8, 2015 and Decision
dated October 1, 2018 in CA-G.R. CV No. 102330 are declared VOID. The proceedings
in the Court of Appeals are SUSPENDED during the pendency of the corporate
rehabilitation case. Accordingly, Kaizen Builders, Inc. is DIRECTED to quarterly update
the Court of Appeals as to the status of its ongoing rehabilitation. The petition for review
in G.R. No. 247647 is DISMISSED.
SO ORDERED.
G.R. No. 177382
VIVA SHIPPING LINES, INC., Petitioner,
vs.
KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST
COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF
BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT,
NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO, and HARLAN
BACALTOS,Respondents.
DECISION
LEONEN, J.:
Rule 43 of the Rules of Court prescribes the procedure to assail the final orders and
decisions in corporate rehabilitation cases filed under the Interim Rules of Procedure
on Corporate Rehabilitation. 1 Liberality in the application of the rules is not an end in
itself. It must be pleaded with factual basis and must be allowed for equitable ends.
There must be no indication that the violation of the rule is due to negligence or design.
Liberality is an extreme exception, justifiable only when equity exists.
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for
Corporate Rehabilitation before the Regional Trial Court of Lucena City.2 The Regional
Trial Court initially denied the Petition for failure to comply with the requirements in Rule
4, Sections 2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation. 3 On
October 17, 2005, Viva Shipping Lines filed an Amended Petition. 4
In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime
vessels5 and Ocean Palace Mall, a shopping mall in downtown Lucena City. 6 Viva
Shipping Lines also declared its total properties’ assessed value at about
₱45,172,790.00.7 However, these allegations were contrary to the attached documents
in the Amended Petition.
One of the attachments, the Property Inventory List, showed that Viva Shipping Lines
owned only two (2) maritime vessels: M/V Viva Peñafrancia V and M/V Marian
Queen.8 The list also stated that the fair market value of all of Viva Shipping Lines’
assets amounted to ₱447,860,000.00,9 ₱400 million more than what was alleged in its
Amended Petition. Some of the properties listed in the Property Inventory List were
already marked as "encumbered" by its creditors;10 hence, only ₱147,630,000.00 of
real property and its vessels were marked as "free assets."11
Viva Shipping Lines also declared the following debts:
Amount of
Name of Creditor Nature of Debts
Obligation
(1) Metropolitan Bank & Trust Loan secured by Real
Company Estate Mortgage ₱176,428,745.50
 On March 24, 2006, Judge Mendoza withdrew his acceptance of appointment as
Charges for Repair of
rehabilitation receiver.27 As replacement, Viva Shipping Lines nominated Atty. Antonio
(2) Keppel Philippines Marine, Inc. Vessels 9,000,000.00+
Acyatan, while Metrobank nominated Atty. Rosario S. Bernaldo.28 Keppel Philippines
Marine, Inc.1âwphi1 adopted Metrobank’s nomination.29
(3) Province of Quezon, Lucena
City, and Province of Batangas, Realty Taxes and
Batangas City Assessments 35,000,000.00+ On April 4, 2006, Metrobank filed a Motion for Production or Inspection of relevant
documents relating to Viva Shipping Lines’ business operations such as board
TOTAL12 ₱220,428,745.50+ resolutions, tax returns, accounting ledgers, bank accounts, and contracts.30 Viva
Shipping Lines filed its opposition. However, the Regional Trial Court granted
Metrobank’s Motion.31 Viva Shipping Lines failed to comply with the Order to produce
According to Viva Shipping Lines, the devaluation of the Philippine peso, increased the documents,32 as well as with the Regional Trial Court Order to submit a
competition, and mismanagement of its businesses made it difficult to pay its debts as memorandum.33
they became due.13 It also stated that "almost all [its] vessels were rendered
unserviceable either because of age and deterioration that [it] can no longer compete
On September 27, 2006, Viva Shipping Lines’ former employees Alejandro Olit, Nida
with modern made vessels owned by other operators."14
Montilla, Pio Hernandez, Eugenio Baculo, and Harlan Bacaltos34 (Alejandro Olit, et al.)
filed their comment on the Amended Petition, informing the Regional Trial Court of their
In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources pending complaint against Viva Shipping Lines before the National Labor Relations
of funding such as the sale of old vessels and commercial lots of its sister company, Commission.35
Sto. Domingo Shipping Lines.15 It also proposed the conversion of the Ocean Palace
Mall into a hotel, the acquisition of two (2) new vessels for shipping operations, and the
In the Order dated October 30, 2006,36 the Regional Trial Court lifted the stay order
"re-operation"16 of an oil mill in Buenavista, Quezon.17
and dismissed Viva Shipping Lines’ Amended Petition for failure to show the company’s
viability and the feasibility of rehabilitation. The Regional Trial Court summarized Viva
Viva Shipping Lines nominated two individuals to be appointed as rehabilitation Shipping Lines’ creditors and debts:37
receiver: Armando F. Ragudo, a businessman from Tayabas, Quezon, and Atty. Calixto
Ferdinand B. Dauz III, a lawyer from Lucena City. 18 A day after filing the Amended
Petition, Viva Shipping Lines submitted the name of a third nominee, Former Judge Amount of
Name of Creditor Nature of Debts38
Jose F. Mendoza (Judge Mendoza).19 Obligation

1 Batangas City Real Estate Taxes ₱264,006.52

On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines’
Amended Petition to be "sufficient in form and substance," and issued a stay order. 20 It
2 Keppel Philippines Marine, Charges for Repair of
stayed the enforcement of all monetary and judicial claims against Viva Shipping Lines,
Inc. Vessels 20,054,977.84
and prohibited Viva Shipping Lines from selling, encumbering, transferring, or disposing
of any of its properties except in the ordinary course of business.21 The Regional Trial
3 Metropolitan Bank & Trust Loan secured by Real Estate
Court also appointed Judge Mendoza as rehabilitation receiver.
Company Mortgage 191,963,465.79

Before the initial hearing scheduled on December 5, 2005, the City of Batangas, Keppel 4 Pilipinas Shell Petroleum
Philippines Marine, Inc., and Metropolitan Bank and Trust Company (Metrobank) filed Corp. Supply Agreement 20,546,797.74
their respective comments and oppositions to Viva Shipping Lines’ Amended Petition.22
5 Luzviminda C. Cueto Labor 232,000.00
During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved
for additional time to write its opposition to Viva Shipping Lines’ Amended TOTAL ₱233,061,247.89
Petition.23 Pilipinas Shell later filed its Comment/Opposition with Formal Notice of
Claim.24
The Regional Trial Court also noted the following as Viva Shipping Lines’ free assets: 39

Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed a

Manifestation and Registration of Monetary Claim stating that Viva Shipping Lines owes Assessed
Nature of Property Market Value
her ₱232,000.00 as separation and 13th month pay. 25 The Securities and Exchange Value
Commission filed a Comment informing the Regional Trial Court that Viva Shipping
Lines violated certain laws and rules of the Commission.26

1. Agricultural/Industrial Lot in San Narciso, ₱
Quezon covered by TCT No. T-155423 16,493,050.00 ₱ 40,000,000.00
2. Agricultural Lot located at San Andres,
Quezon covered by TCT No. T-215549 1,235,010.00 47,630,000.00
3. MV Viva Peñafrancia 5 30,000,000.00
4. MV Marian Queen40 30,000,000.00
₱ their respective memoranda.67
TOTAL 147,630,000.00
The Regional Trial Court found that Viva Shipping Lines’ assets all appeared to be non-
performing. Further, it noted that Viva Shipping Lines failed to show any evidence of
consent to sell real properties belonging to its sister company. 41
Aggrieved, Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules
of Court before the Court of Appeals.42 It only impleaded Hon. Adolfo V. Encomienda,
the Presiding Judge of the trial court that rendered the assailed decision. It did not
implead any of its creditors, but served copies of the Petition on counsels for
Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of Batangas, Province
of Quezon, and City of Lucena.43 Viva Shipping Lines neither impleaded nor served a
copy of the Petition on its former employees or their counsels.
The Court of Appeals dismissed Viva Shipping Lines’ Petition for Review in the
Resolution dated January 5, 2007.44It found that Viva Shipping Lines failed to comply
with procedural requirements under Rule 43.45 The Court of Appeals ruled that due to
the failure of Viva Shipping Lines to implead its creditors as respondents, "there are no
respondents who may be required to file a comment on the petition, pursuant to Section
8 of Rule 43."46
Viva Shipping Lines moved for reconsideration.47 It argued that its procedural misstep
was cured when it served copies of the Petition on the Regional Trial Court and on its
former employees.48 In the Resolution dated March 30, 2007, the Court of Appeals
denied Viva Shipping Lines’ Motion for Reconsideration.49
Viva Shipping Lines filed before this court a Petition for Review on Certiorari assailing
the January 5, 2007 and March 30, 2007 Court of Appeals Resolutions.50 It prayed that
the case be remanded to the Court of Appeals for adjudication on the merits. 51
Without necessarily giving due course to the Petition, this court required respondents
to comment.52 Keppel Philippines Marine, Inc.,53 Pilipinas Shell,54 Metrobank,55 former
employees Alejandro Olit et al.,56 the City of Batangas,57 the City Treasurer of
Lucena,58 and the Provincial Treasurer of Quezon59 filed their respective Comments.
On September 17, 2008,60 December 10, 2008,61 and July 20, 2009,62 this court
required Viva Shipping Lines to file replies to respondents’ comments. Viva Shipping
Lines’ counsel, Abesamis Law Office, withdrew its representation, which was accepted
by this court.63 Viva Shipping Lines was unable to file its consolidated reply; hence, this
court resolved that Viva Shipping Lines’ right to file a consolidated reply was deemed
waived.64
On September 1, 2011, Atty. Vicente M. Joyas (Atty. Joyas) entered his appearance
as Viva Shipping Lines’ new counsel.65 Atty. Joyas moved for several extensions of
time to comply with this court’s order to file a consolidated reply. This court allowed
Atty. Joyas’ Motions, and Viva Shipping Lines’ consolidated reply was noted in our
Resolution dated December 7, 2011.66 This court then ordered the parties to submit
Viva Shipping Lines, Inc.68 and respondents Pilipinas Shell,69 Keppel Philippines
Marine, Inc.,70 and Metrobank71submitted their respective memoranda. This court
dispensed with the filing of the other respondents’ memoranda.72
We resolve the following issues:
First, whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines’
Petition for Review on procedural grounds; and
Second, whether petitioner was denied substantial justice when the Court of Appeals
did not give due course to its petition.
Petitioner argues that the Court of Appeals should have given due course to its Petition
and excused its non-compliance with procedural rules.73 For petitioner, the Interim
Rules of Procedure on Corporate Rehabilitation mandates a liberal construction of
procedural rules, which must prevail over the strict application of Rule 43 of the Rules
of Court.74
According to petitioner, this court disfavors dismissals based on pure technicalities and
adopts a policy stating that rules on appeal are "not iron-clad and must yield to loftier
demands of substantial [j]ustice and equity."75 For petitioner, the immediate dismissal
of its Petition for Review is contrary to the purpose of corporate rehabilitation to rescue
and rehabilitate financially distressed companies.76
Respondents, on the other hand, argue that the dismissal of petitioner’s Petition for
Review was proper for its failure to implead any of its creditors. Petitioner’s procedural
misstep resulted in the denial of the creditors’ right to due process as they could not file
a comment on the Petition.77 Respondent Pilipinas Shell points out that petitioner did
not even try to explain why it failed to implead its creditors in its Petition.78
Respondents cite Rule 43, Section 7, which states that non-compliance with any of the
requirements of proof of service of the Petition, and the required contents, shall be
sufficient ground for the dismissal of the Petition.79Compliance with Rule 43 is required
under the Interim Rules of Procedure on Corporate Rehabilitation because it is the
prescribed mode of appealing trial court decisions and final orders in corporate
rehabilitation cases.80 According to respondent Metrobank, contrary to the views of
petitioner, the policy of liberality in construction of the Interim Rules of Procedure on
Corporate Rehabilitation are limited to proceedings in the Regional Trial Court, and not
with respect to procedural rules in elevating appeals relating to corporate
rehabilitation.81
Respondents note that because petitioner repeatedly defied procedural rules, it
therefore was no longer entitled to the relaxation of these rules.82 Respondent Pilipinas
Shell also points out the defects in the verification, certification of non-forum shopping,
and attachments of petitioner in its Petition before this court.83
Respondent City of Batangas emphasizes that the Rules of Court are promulgated to
facilitate the adjudication of cases. It argues that petitioner should not be afforded
equitable considerations as it acted in bad faith by concealing material information
during the rehabilitation proceedings.84
Respondents further argue that even if the Court of Appeals gave due course to the
Petition, it would still have dismissed the case on the merits. Respondents cite
petitioner’s failure to provide material facts with sufficient particularity in its Amended
Petition for Corporate Rehabilitation.85 Petitioner also failed to disclose some of its
creditors, as well as the several pending cases relating to its financial liabilities.86 It
failed to describe with specificity the cause of its inability to pay its debts. 87 It also failed
to clarify which vessels were still under its ownership, and which vessels had maritime
liens.88 Petitioner merely estimated its liabilities against its creditors. 89 Respondents
also allege that petitioner nominated rehabilitators who are professionally connected
with its counsel despite the existence of conflict of interest. 90
Respondents point out that petitioner’s admission that almost all its vessels are
rendered unserviceable suggests that rehabilitation is no longer viable. 91 Former
employees also mention that despite petitioner’s desire to rehabilitate, after the
Regional Trial Court’s final order, petitioner began disposing of some of its
assets.92Respondents also cannot rely on the plan to sell some of petitioner’s sister
company’s properties. They also express doubts regarding petitioner’s plan of
converting its mall to a hotel/restaurant because it had no such experience.
Respondents thus characterize Viva Shipping Lines’ rehabilitation plan as "unrealistic,
untested, and improbable."93
We deny the Petition.
I
Corporate rehabilitation is a remedy for corporations, partnerships, and associations
"who [foresee] the impossibility of meeting [their] debts when they respectively fall
due."94 A corporation under rehabilitation continues with its corporate life and activities
to achieve solvency,95 or a position where the corporation is able to pay its obligations
as they fall due in the ordinary course of business. Solvency is a state where the
businesses’ liabilities are less than its assets. 96
Corporate rehabilitation is a type of proceeding available to a business that is insolvent.
In general, insolvency proceedings provide for predictability that commercial obligations
will be met despite business downturns. Stability in the economy results when there is
assurance to the investing public that obligations will be reasonably paid. It is
considered state policy
to encourage debtors, both juridical and natural persons, and their creditors
to collectively and realistically resolve and adjust competing claims and property
rights[.] . . . [R]ehabilitation or liquidation shall be made with a view to ensure or maintain
certainty and predictability in commercial affairs, preserve and maximize the value of
the assets of these debtors, recognize creditor rights and respect priority of claims, and
ensure equitable treatment of creditors who are similarly situated. When rehabilitation
is not feasible, it is in the interest of the State to facilitate a speedy and orderly
liquidation of these debtors’ assets and the settlement of their obligations.97 (Emphasis
supplied)
The rationale in corporate rehabilitation is to resuscitate businesses in financial distress
because "assets . . . are often more valuable when so maintained than they would be
when liquidated."98 Rehabilitation assumes that assets are still serviceable to meet the
purposes of the business. The corporation receives assistance from the court and a
disinterested rehabilitation receiver to balance the interest to recover and continue
ordinary business, all the while attending to the interest of its creditors to be paid
equitably. These interests are also referred to as the rehabilitative and
the equitable purposes of corporate rehabilitation.99
The nature of corporate rehabilitation was thoroughly discussed in Pryce Corporation
v. China Banking Corporation:100
Corporate rehabilitation is one of many statutorily provided remedies for businesses
that experience a downturn. Rather than leave the various creditors unprotected,
legislation now provides for an orderly procedure of equitably and fairly addressing their
concerns. Corporate rehabilitation allows a court-supervised process to rejuvenate a
corporation. . . . It provides a corporation’s owners a sound chance to re-engage the
market, hopefully with more vigor and enlightened services, having learned from a
painful experience.
Necessarily, a business in the red and about to incur tremendous losses may not be
able to pay all its creditors. Rather than leave it to the strongest or most resourceful
amongst all of them, the state steps in to equitably distribute the corporation’s limited
resources.
....
Rather than let struggling corporations slip and vanish, the better option is to allow
commercial courts to come in and apply the process for corporate rehabilitation.101
Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation102 reiterates that courts "must endeavor to balance the interests of all the
parties that had a stake in the success of rehabilitating the debtors." 103These parties
include the corporation seeking rehabilitation, its creditors, and the public in general. 104
The public’s interest lies in the court’s ability to effectively ensure that the obligations of
the debtor, who has experienced severe economic difficulties, are fairly and equitably
served. The alternative might be a chaotic rush by all creditors to file separate cases
with the possibility of different trial courts issuing various writs competing for the same
assets. Rehabilitation is a means to temper the effect of a business downturn
experienced for whatever reason. In the process, it gives entrepreneurs a second
chance. Not only is it a humane and equitable relief, it encourages efficiency and
maximizes welfare in the economy.
Clearly then, there are instances when corporate rehabilitation can no longer be
achieved. When rehabilitation will not result in a better present value recovery for the
creditors,105 the more appropriate remedy is liquidation.106
It does not make sense to hold, suspend, or continue to devalue outstanding credits of
a business that has no chance of recovery. In such cases, the optimum economic
welfare will be achieved if the corporation is allowed to wind up its affairs in an orderly
manner. Liquidation allows the corporation to wind up its affairs and equitably distribute
its assets among its creditors.107
Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the
same time.108 In rehabilitation, corporations have to maintain their assets to continue
business operations. In liquidation, on the other hand, corporations preserve their
assets in order to sell them. Without these assets, business operations are effectively
discontinued. The proceeds of the sale are distributed equitably among creditors, and
surplus is divided or losses are re-allocated.109
Proceedings in case of insolvency are not limited to rehabilitation. Our laws have
evolved to provide for different procedures where a debtor can undergo judicially
supervised reorganization or liquidation of its assets. 110
Corporate rehabilitation traces its roots to Act No. 1956, otherwise known as the
Insolvency Law of 1909. Under the Insolvency Law, a debtor in possession of sufficient
properties to cover all its debts but foresees the impossibility of meeting them when
they fall due may file a petition before the court to be declared in a state of suspension
of payments.111 This allows time for the debtor to organize its affairs in order to achieve
a state where it can comply with its obligations.
The relief was also provided in the amendatory provisions of Presidential Decree No.
902-A. Section 5 of Presidential Decree No. 902-A states that the Securities and
Exchange Commission has jurisdiction to decide:
d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or
association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to cover its liabilities,
but is under the management of a Rehabilitation Receiver or Management Committee
created pursuant to this Decree.112 (Emphasis supplied).
In 2000, the jurisdiction of the Securities and Exchange Commission over these cases
was transferred to the Regional Trial Court, 113 by operation of Section 5.2 of the
Securities Regulation Code.114 In the same year, this court approved the Interim Rules
of Procedure on Corporate Rehabilitation. The Interim Rules of Procedure on Corporate
Rehabilitation provides a summary and non-adversarial proceeding to expedite the
resolution of cases for the benefit of the corporation in need of rehabilitation, its
creditors, and the public in general.115
Currently, the prevailing law and procedure for corporate rehabilitation is the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA).116 FRIA provides procedures for the
different types of rehabilitation and liquidation proceedings. The Financial
Rehabilitation Rules of Procedure was issued by this court on August 27, 2013. 117
However, since the Regional Trial Court acted on petitioner’s Amended Petition before
FRIA was enacted, Presidential Decree No. 902-A and the Interim Rules of Procedure
on Corporate Rehabilitation were applied to this case. 118
II
The controversy in this case arose from petitioner’s failure to comply with appellate
procedural rules in corporate rehabilitation cases. Petitioner now pleads this court to
apply the policy of liberality in constructing the rules of procedure. 119
We observe that during the corporate rehabilitation proceedings, the Regional Trial
Court already exercised the liberality contemplated by the Interim Rules of Procedure
on Corporate Rehabilitation. The Regional Trial Court initially dismissed Viva Shipping
Lines’ Petition but allowed the filing of an amended petition. Later on, the same court
issued a stay order when there were sufficient grounds to believe that the Amended
Petition complied with Rule 4, Section 2 of the Interim Rules of Procedure on Corporate
Rehabilitation. Petitioner was not penalized for its non-compliance with the court’s order
to produce relevant documents or for its non-submission of a memorandum.120
Even with these accommodations, the trial court still found basis to dismiss the plea for
rehabilitation.
Any final order or decision of the Regional Trial Court may be subject of an
appeal.121 In Re: Mode of Appeal in Cases Formerly Cognizable by the Securities and
Exchange Commission,122 this court clarified that all decisions and final orders falling
under the Interim Rules of Procedure on Corporate Rehabilitation shall be appealable
to the Court of Appeals through a petition for review under Rule 43 of the Rules of
Court.123
New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo
City124 clarifies that an appeal from a final order or decision in corporate rehabilitation
proceedings may be dismissed for being filed under the wrong mode of appeal. 125
New Frontier Sugar doctrinally requires compliance with the procedural rules for
appealing corporate rehabilitation decisions. It is true that Rule 1, Section 6 of the Rules
of Court provides that the "[r]ules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and
proceeding." However, this provision does not negate the entire Rules of Court by
providing a license to disregard all the other provisions. Resort to liberal construction
must be rational and well-grounded, and its factual bases must be so clear such that
they outweigh the intent or purpose of an apparent reading of the rules.
Rule 43 prescribes the mode of appeal for corporate rehabilitation cases:
Sec. 5. How appeal taken. – Appeal shall be taken by filing a verified petition for review
in seven (7) legible copies with the Court of Appeals, with proof of service of a copy
thereof on the adverse party and on the court or agency a quo. The original copy of the
petition intended for the Court of Appeals shall be indicated as such by the petitioner.
....
Sec. 6. Contents of the petition. – The petition for review shall (a) state the full names
of the parties to the case, without impleading the court or agencies either as petitioners
or respondents; (b) contain a concise statement of the facts and issues involved and
the grounds relied upon for the review; (c) be accompanied by a clearly legible duplicate
original or a certified true copy of the award, judgment, final order or resolution
appealed from, together with certified true copies of such material portions of the record
referred to therein and other supporting papers; and (d) contain a sworn certification
against forum shopping as provided in the last paragraph of section 2, Rule 42. The
petition shall state the specific material dates showing that it was filed within the period
fixed herein. (Emphasis supplied)
Petitioner did not comply with some of these requirements. First, it did not implead its
creditors as respondents. Instead, petitioner only impleaded the Presiding Judge of the
Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a
copy of the Petition on some of its creditors, specifically, its former employees. Finally,
it did not serve a copy of the Petition on the Regional Trial Court.
Petitioner justified its failure to furnish its former employees with copies of the Petition
by stating that the former employees were late in filing their opposition before the trial
court.126 It also stated that its failure to furnish the Regional Trial Court with a copy of
the Petition was unintentional.127
The Court of Appeals correctly dismissed petitioner’s Rule 43 Petition as a
consequence of non-compliance with procedural rules. Rule 43, Section 7 of the Rules
of Court states:
Sec. 7. Effect of failure to comply with requirements. – The failure of the petitioner to
comply with any of the foregoing requirements regarding the payment of the docket and
other lawful fees, the deposit of costs, proof of service of the petition, and the contents
of and the documents which should accompany the petition shall be sufficient ground
for the dismissal thereof.
Petitioner admitted its failure to comply with the rules. It begs the indulgence of the
court to give due course to its Petition based on their belated compliance with some of
these procedural rules and the policy on the liberal construction of procedural rules.
There are two kinds of "liberality" with respect to the construction of provisions of law.
The first requires ambiguity in the text of the provision and usually pertains to a situation
where there can be two or more viable meanings given the factual context presented
by a case. Liberality here means a presumption or predilection to interpret the text in
favor of the cause of the party requesting for "liberality."
Then there is the "liberality" that actually means a request for the suspension of the
operation of a provision of law, whether substantive or procedural. This liberality
requires equity. There may be some rights that are not recognized in law, and if courts
refuse to recognize these rights, an unfair situation may arise. 128 Specifically, the case
may be a situation that was not contemplated on or was not possible at the time the
legal norm was drafted or promulgated.
It is in the second sense that petitioner pleads this court.
III
Our courts are not only courts of law, but are also courts of equity.129 Equity is justice
outside legal provisions, and must be exercised in the absence of law, not against
it.130 In Reyes v. Lim:131 Equity jurisdiction aims to do complete justice in cases where
a court of law is unable to adapt its judgments to the special circumstances of a case
because of the inflexibility of its statutory or legal jurisdiction. Equity is the principle by
which substantial justice may be attained in cases where the prescribed or customary
forms of ordinary law are inadequate.132 (Citation omitted)
Liberality lies within the bounded discretion of a court to allow an equitable result when
the proven circumstances require it. Liberality acknowledges a lacuna in the text of a
provision of law. This may be because those who promulgated the rule may not have
foreseen the unique circumstances of a case at bar. Human foresight as laws and rules
are prepared is powerful, but not perfect.
Liberality is not an end in itself. Otherwise, it becomes a backdoor disguising the
arbitrariness or despotism of judges and justices. In North Bulacan Corp. v.
PBCom,133 the Regional Trial Court ignored several procedural rules violated by the
petitioning corporation and allowed rehabilitation in the guise of liberality. This court
found that the Regional Trial Court grossly abused its authority when it allowed
rehabilitation despite the corporation’s blatant non-compliance with the rules.
The factual antecedents of a plea for the exercise of liberality must be clear. There must
also be a showing that the factual basis for a plea for liberality is not one that is due to
the negligence or design of the party requesting the suspension of the rules. Likewise,
the basis for claiming an equitable result—for all the parties—must be clearly and
sufficiently pleaded and argued. Courts exercise liberality in line with their equity
jurisdiction; hence, it may only be exercised if it will result in fairness and justice.
IV
The first rule breached by petitioner is the failure to implead all the indispensable
parties. Petitioner did not even interpose reasons why it should be excused from
compliance with the rule to "state the full names of the parties to the case, without
impleading the court . . . as . . . respondents." Petitioner did exactly the opposite. It
failed to state the full names of its creditors as respondents. Instead, it impleaded the
Presiding Judge of the originating court.
The Rules of Court requires petitioner to implead respondents as a matter of due
process. Under the Constitution, "[n]o person shall be deprived of life, liberty or property
without due process of the law."134 An appeal to a corporate rehabilitation case may
deprive creditor-stakeholders of property. Due process dictates that these creditors be
impleaded to give them an opportunity to protect the property owed to them.
Creditors are indispensable parties to a rehabilitation case, even if a rehabilitation case
is non-adversarial. In Boston Equity Resources, Inc. v. Court of Appeals:135
An indispensable party is one who has such an interest in the controversy or subject
matter of a case that a final adjudication cannot be made in his or her absence, without
injuring or affecting that interest. He or she is a party who has not only an interest in
the subject matter of the controversy, but "an interest of such nature that a final decree
cannot be made without affecting [that] interest or leaving the controversy in such a
condition that its final determination may be wholly inconsistent with equity and good
conscience. It has also been considered that an indispensable party is a person in
whose absence there cannot be a determination between the parties already before
the court which is effective, complete or equitable." Further, an indispensable party is
one who must be included in an action before it may properly proceed. 136
A corporate rehabilitation case cannot be decided without the creditors’ participation.
The court’s role is to balance the interests of the corporation, the creditors, and the
general public. Impleading creditors as respondents on appeal will give them the
opportunity to present their legal arguments before the appellate court. The courts will
not be able to balance these interests if the creditors are not parties to a case. Ruling
on petitioner’s appeal in the absence of its creditors will not result in judgment that is
effective, complete, and equitable.
This court cannot exercise its equity jurisdiction and allow petitioner to circumvent the
requirement to implead its creditors as respondents. Tolerance of such failure will not
only be unfair to the creditors, it is contrary to the goals of corporate rehabilitation, and
will invalidate the cardinal principle of due process of law.
The failure of petitioner to implead its creditors as respondents cannot be cured by
serving copies of the Petition on its creditors. Since the creditors were not impleaded
as respondents, the copy of the Petition only serves to inform them that a petition has
been filed before the appellate court. Their participation was still significantly truncated.
Petitioner’s failure to implead them deprived them of a fair hearing. The appellate court
only serves court orders and processes on parties formally named and identified by the
petitioner. Since the creditors were not named as respondents, they could not receive
court orders prompting them to file remedies to protect their property rights.
The next procedural rule that petitioner pleaded to suspend is the rule requiring it to
furnish all parties with copies of the Rule 43 Petition. Petitioner admitted its failure to
furnish its former employees with copies of the Petition because they belatedly filed
their claims before the Regional Trial Court.
This argument is specious at best; at worst, it foists a fraud on this court. The former
employees were unable to raise their claims on time because petitioner did not declare
them as creditors. The Amended Petition did not contain any information regarding
pending litigation between petitioner and its former employees. The only way the former
employees could become aware of the corporate rehabilitation proceedings was either
through the required publication or through news informally circulated among their
colleagues. Clearly, it was petitioner who caused the belated filing of its former
employees’ claims when it failed to notify its employees of the corporate rehabilitation
proceedings. Petitioner’s failure was conveniently and disreputably hidden from this
court.
Former employee Luzviminda C. Cueto filed her Manifestation and Registration of
Monetary Claim as early as November 25, 2005. Alejandro Olit, et al., the other
employees, filed their Comment on September 27, 2006. By the time petitioner filed its
Petition for Review dated November 21, 2006 before the Court of Appeals, it was well
aware that these individuals had expressed their interest in the corporate rehabilitation
proceedings. Petitioner and its counsel had no excuse to exclude these former
employees as respondents on appeal.
Petitioner’s belated compliance with the requirement to serve the Petition for Review
on its former employees did not cure the procedural lapse. There were two sets of
employees with claims against petitioner: Luzviminda C. Cueto and Alejandro Olit, et
al. When the Court of Appeals dismissed petitioner’s appeal, petitioner only served a
copy on Alejandro Olit, et al. Petitioner still did not serve a copy on Luzviminda C.
Cueto.
We do not see how it will be in the interest of justice to allow a petition that fails to inform
some of its creditors that the final order of the corporate rehabilitation proceeding was
appealed. By not declaring its former employees as creditors in the Amended Petition
for Corporate Rehabilitation and by not notifying the same employees that an appeal
had been filed, petitioner consistently denied the due process rights of these
employees.
This court cannot be a party to the inequitable way that petitioner’s employees were
treated.
Petitioner also pleaded to be excused from the requirement under Rule 6, Section 5 of
the Rules of Court to serve a copy of the Petition on the originating court. According to
petitioner, the annexes for the Petition for Review filed before the Court of Appeals
arrived from Lucena City on the last day of filing the petition. Petitioner’s representative
from Lucena City and petitioner’s counsel rushed to compile and reproduce all the
documents, and in such rush, failed to send a copy to the Regional Trial Court. When
petitioner realized that it failed to furnish the originating court with a copy of the Petition,
a copy was immediately sent by registered mail.137
Again, petitioner’s excuse is unacceptable. Petitioner had 15 days to file a Rule 43
petition, which should include the proof of service to the originating court. Rushing the
compilation of the pleading with the annexes has nothing to do with being able to
comply with the requirement to submit a proof of service of the copy of the petition for
review to the originating court. If at all, it further reflects the unprofessional way that
petitioner and its counsel treated our rules.
As this court has consistently ruled, "[t]he right to appeal is not a natural right[,] nor a
part of due process; it is merely a statutory privilege, and may be exercised only in the
manner and in accordance with the provisions of the law."138
In line with this, liberality in corporate rehabilitation procedure only generally refers to
the trial court, not to the proceedings before the appellate court. The Interim Rules of
Procedure on Corporate Rehabilitation covers petitions for rehabilitation filed before the
Regional Trial Court. Thus, Rule 2, Section 2 of the Interim Rules of Procedure on
Corporate Rehabilitation, which refers to liberal construction, is limited to the Regional
Trial Court. The liberality was given "to assist the parties in obtaining a just, expeditious,
and inexpensive disposition of the case."139
In Spouses Ortiz v. Court of Appeals,140 the petitioners made a procedural mistake with
the attachments of the petition before the Court of Appeals. The petitioners
subsequently provided the correct attachments; however, this court still upheld the
Court of Appeals’ dismissal:
The party who seeks to avail [itself] of [an appeal] must comply with the requirements
of the rules. Failing to do so, the right to appeal is lost. Rules of procedure are required
to be followed, except only when for the most persuasive of reasons, they may be
relaxed to relieve a litigant of an injustice not commensurate with the degree of his
thoughtlessness in not complying with the procedure prescribed.141
Petitioner’s excuses do not trigger the application of the policy of liberality in construing
procedural rules. For the courts to exercise liberality, petitioner must show that it is
suffering from an injustice not commensurate to the thoughtlessness of its procedural
mistakes. Not only did petitioner exercise injustice towards its creditors, its Rule 43
Petition for Review did not show that the Regional Trial Court erred in dismissing its
Amended Petition for Corporate Rehabilitation.
V These requirements put emphasis on liquidity: the cash flow that the distressed
Petitioner’s main argument for the continuation of corporate rehabilitation proceedings
is that the Regional Trial Court should have allowed petitioner to clarify its Amended
Petition with respect to details regarding its assets and its liabilities to its creditors
instead of dismissing the Petition outright. 142
The Regional Trial Court correctly dismissed the Amended Petition for Corporate
Rehabilitation. The dismissal of the Amended Petition did not emanate from petitioner’s
failure to provide complete details on its assets and liabilities but on the trial court’s
finding that rehabilitation is no longer viable for petitioner. Under the Interim Rules of
Procedure on Corporate Rehabilitation, a "petition shall be dismissed if no rehabilitation
plan is approved by the court upon the lapse of one hundred eighty (180) days from the
date of the initial hearing."143 The proceedings are also deemed terminated upon the
trial court’s disapproval of a rehabilitation plan, "or a determination that the rehabilitation
plan may no longer be implemented in accordance with its terms, conditions,
restrictions, or assumptions."144
Bank of the Philippine Islands v. Sarabia Manor Hotel Corp.145 provides the test to help
trial courts evaluate the economic feasibility of a rehabilitation plan:
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative
that a thorough examination and analysis of the distressed corporation’s financial
data must be conducted. If the results of such examination and analysis show that there
is a real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the other hand, if the results
of the financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation.146 (Emphasis supplied)
Professor Stephanie V. Gomez of the University of the Philippines College of Law
suggests specific characteristics of an economically feasible rehabilitation plan:
a. The debtor has assets that can generate more cash if used in its daily
operations than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will
generate enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full
implementation of a Rehabilitation Plan that is anchored on realistic
assumptions and goals.147 (Emhasis supplied)
corporation will obtain from rehabilitating its assets and operations. A corporation’s
assets may be more than its current liabilities, but some assets may be in the form of
land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that
these assets generate more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics of a rehabilitation plan that
is infeasible:
 (a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution of
the business plan;
The other part of the rehabilitation plan entails selling properties of petitioner’s sister
company.1âwphi1 As pointed out by the Regional Trial Court, this plan requires
conformity from the sister company. Even if the two companies have the same
directorship and ownership, they are still two separate juridical entities. In BPI Family
Savings Bank v. St. Michael Medical Center,155 this court refused to include in the
financial and liquidity assessment the financial statements of another corporation that
the petitioning-corporation plans to merge with.

(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully
depreciated.148
In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also
suggests that the Financial and Rehabilitation and Insolvency Act of 2010 emphasizes
on rehabilitation that provides for better present value recovery for its creditors.149
Present value recovery acknowledges that, in order to pave way for rehabilitation, the
creditor will not be paid by the debtor when the credit falls due. The court may order a
suspension of payments to set a rehabilitation plan in motion; in the meantime, the
creditor remains unpaid. By the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past has a different value in the
future.150 It is unfair if the creditor merely receives the face value of the debt. Present
value of the credit takes into account the interest that the amount of money would have
earned if the creditor were paid on time.151
As pointed out by respondents, petitioner’s rehabilitation plan is almost impossible to
implement. Even an ordinary individual with no business acumen can discern the
groundlessness of petitioner’s rehabilitation plan. Petitioner should have presented a
more realistic and practicable rehabilitation plan within the time periods allotted after
initiatory hearing, or otherwise, should have opted for liquidation.
Finally, petitioner argues that after Judge Mendoza’s withdrawal as rehabilitation
receiver, the Regional Trial Court should have appointed a new rehabilitation receiver
to evaluate the rehabilitation plan. We rule otherwise. It is not solely the responsibility
of the rehabilitation receiver to determine the validity of the rehabilitation plan. The
Interim Rules of Procedure on Corporate Rehabilitation allows the trial court to
disapprove a rehabilitation plan156 and terminate proceedings or, should the instances
warrant, to allow modifications to a rehabilitation plan. 157
The Regional Trial Court rendered a decision in accordance with facts and law. Thus,
we deny the plea for liberalization of procedural rules. To grant the plea would cause
more economic hardship and injustice to all those concerned.

Trial courts must ensure that the projected cash flow from a business’ rehabilitation WHEREFORE, the Petition is DENIED. The Court of Appeals Resolutions dated
plan allows for the closest present value recovery for its creditors. If the projected cash January 7, 2007 and March 30, 2007 in CA-G.R. SP No. 96974 are AFFIRMED.
flow is realistic and allows the corporation to meet all its obligations, then courts should
favor rehabilitation over liquidation. However, if the projected cash flow is unrealistic, SO ORDERED.
then courts should consider converting the proceedings into that for liquidation to
protect the creditors.

The Regional Trial Court correctly dismissed petitioner’s rehabilitation plan. It found
that petitioner’s assets are non-performing.152 Petitioner admitted this in its Amended
Petition when it stated that its vessels were no longer serviceable. 153 In Wonder Book
Corporation v. Philippine Bank of Communications,154 a rehabilitation plan is infeasible
if the assets are nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of successful
operation and solvency.

Petitioner’s rehabilitation plan should have shown that petitioner has enough
serviceable assets to be able to continue its business. Yet, the plan showed that the
source of funding would be to sell petitioner’s old vessels. Disposing of the assets
constituting petitioner’s main business cannot result in rehabilitation. A business
primarily engaged as a shipping line cannot operate without its ships. On the other
hand, the plan to purchase new vessels sacrifices the corporation’s cash flow. This is
contrary to the goal of corporate rehabilitation, which is to allow present value recovery
for creditors. The plan to buy new vessels after selling the two vessels it currently owns
is neither sound nor workable as a business plan.
G.R. No. 175844 July 29, 2013
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
SARABIA MANOR HOTEL CORPORATION, Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated April
24, 2006 and Resolution3dated December 6, 2006 of the Court of Appeals, Cebu City
(CA) in CA-G.R. CV. No. 81596 which affirmed with modification the rehabilitation plan
of respondent Sarabia Manor Hotel Corporation (Sarabia) as approved by the Regional
Trial Court of Iloilo City, Branch 39 (RTC) through its Order4 dated August 7, 2003.
The Facts
Sarabia is a corporation duly organized and existing under Philippine laws, with
principal place of business at 101 General Luna Street, Iloilo City. 5 It was incorporated
on February 22, 1982, with an authorized capital stock of ₱10,000,000.00, fully
subscribed and paid-up, for the primary purpose of owning, leasing, managing and/or
operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths,
massage parlors and such other businesses incident to or necessary in the
management or operation of hotels.6
In 1997, Sarabia obtained a ₱150,000,000.00 special loan package from Far East Bank
and Trust Company (FEBTC) in order to finance the construction of a five-storey hotel
building (New Building) for the purpose of expanding its hotel business. An additional
₱20,000,000.00 stand-by credit line was approved by FEBTC in the same year. 7
The foregoing debts were secured by real estate mortgages over several parcels of
land8 owned by Sarabia and a comprehensive surety agreement dated September 1,
1997 signed by its stockholders.9 By virtue of a merger, Bank of the Philippine Islands
(BPI) assumed all of FEBTC’s rights against Sarabia.10
Sarabia started to pay interests on its loans as soon as the funds were released in
October 1997. However, largely because of the delayed completion of the New
Building, Sarabia incurred various cash flow problems. Thus, despite the fact that it had
more assets than liabilities at that time, 11 it, nevertheless, filed, on July 26, 2002, a
Petition12 for corporate rehabilitation (rehabilitation petition) with prayer for the issuance
of a stay order before the RTC as it foresaw the impossibility to meet its maturing
obligations to its creditors when they fall due.
In the said petition, Sarabia claimed that its cash position suffered when it was forced
to take-over the construction of the New Building due to the recurring default of its
contractor, Santa Ana – AJ Construction Corporation (contractor),13 and its subsequent
abandonment of the said project.14 Accordingly, the New Building was completed only
in the latter part of 2000, or two years past the original target date of August 1998,
thereby skewing Sarabia’s projected revenues. In addition, it was compelled to divert
some of its funds in order to cover cost overruns. The situation became even more
difficult when the grace period for the payment of the principal loan amounts ended in
2000 which resulted in higher amortizations. Moreover, external events adversely
affecting the hotel industry, i.e., the September 11, 2001 terrorist attacks and the Abu
Sayyaf issue, also contributed to Sarabia’s financial difficulties. 15 Owing to these
circumstances, Sarabia failed to generate enough cash flow to service its maturing
obligations to its creditors, namely: (a) BPI (in the amount of ₱191,476,421.42); (b)
Rural Bank of Pavia (in the amount of ₱2,500,000.00); (c) Vic Imperial Appliance Corp.
(Imperial Appliance) (in the amount of ₱5,000,000.00); (d) its various suppliers (in the
amount of ₱7,690,668.04); (e) the government (for minimum corporate income tax in
the amount of ₱547,161.18); and (f) its stockholders (in the amount of
₱18,748,306.35).16
In its proposed rehabilitation plan,17 Sarabia sought for the restructuring of all its
outstanding loans, submitting that the interest payments on the same be pegged at a
uniform escalating rate of: (a) 7% per annum (p.a.) for the years 2002 to 2005; (b) 8%
p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a.
for the years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise, Sarabia sought
to make annual payments on the principal loans starting in 2004, also in escalating
amounts depending on cash flow. Further, it proposed that it should pay off its
outstanding obligations to the government and its suppliers on their respective due
dates, for the sake of its day to day operations.
Finding Sarabia’s rehabilitation petition sufficient in form and substance, the RTC
issued a Stay Order18 on August 2, 2002. It also appointed Liberty B. Valderrama as
Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI filed its Opposition. 19
After several hearings, the RTC gave due course to the rehabilitation petition and
referred Sarabia’s proposed rehabilitation plan to the Receiver for evaluation. 20
In a Recommendation21 dated July 10, 2003 (Receiver’s Report), the Receiver found
that Sarabia may be rehabilitated and thus, made the following recommendations:
(1) Restructure the loans with Sarabia’s creditors, namely, BPI, Imperial
Appliance, Rural Bank of Pavia, and Barcelo Gestion Hotelera, S.L. (Barcelo),
under the following terms and conditions: (a) the total outstanding balance as
of December 31, 2002 shall be recomputed, with the interest for the years
2001 and 2002 capitalized and treated as part of the principal; (b) waive all
penalties; (c) extend the payment period to seventeen (17) years, i.e., from
2003 to 2019, with a two-year grace period in principal payment; (d) fix the
interest rate at 6.75% p.a. plus 10% value added tax on interest for the entire
term of the restructured loans;22 (e) the interest and principal based on the
amortization schedule shall be payable annually at the last banking day of
each year; and (f) any deficiency shall be paid personally by Sarabia’s
stockholders in the event it fails to generate enough cash flow; on the other
hand, any excess funds generated at the end of the year shall be paid to the
creditors to accelerate the debt servicing; 23
 (2) Pay Sarabia’s outstanding payables with its suppliers and the government
so as not to disrupt hotel operations;24
(3) Convert the Advances from stockholders amounting to ₱18,748,306.00 to
stockholder’s equity and other advances amounting to ₱42,688,734.00 as of
the December 31, 2002 tentative financial statements to Deferred Credits; the
said conversion should increase stockholders’ equity to ₱268,545,731.00 and
bring the debt to equity ratio to 0.85:1;25
(4) Require Sarabia’s stockholders to pay its payables to the hotel recorded
as Accounts Receivable – Trade, amounting to ₱285,612.17 as of December
31, 2001, and its remaining receivables after such date; 26
(5) No compensation or cash dividends shall be paid to the stockholders
during the rehabilitation period, except those who are directly employed by the
hotel as a full time officer, employee or consultant covered by a valid contract
and for a reasonable fee;27
(6) All capital expenditures which are over and above what is provided in the
case flow of the rehabilitation plan which will materially affect Sarabia’s cash
position but which are deemed necessary in order to maintain the hotel’s
competitiveness in the industry shall be subject to the RTC’s approval prior to
its implementation;28
(7) Terminate the management contract with Barcelo, thereby saving an
estimated ₱25,830,997.00 in management fees, over and above the salaries
and benefits of certain managerial employees;29
(8) Appoint a new management team which would be required to submit a
comprehensive business plan to support the generation of the target revenue
as reported in the rehabilitation plan;30
(9) Open a debt servicing account and transfer all excess funds thereto, which
in no case should be less than ₱500,000.00 at the end of the month; the funds
will be drawn payable to the creditors only based on the amortization
schedule;31 and
(10) Release the surety obligations of Sarabia’s stockholders, considering the
adequate collaterals and securities covered by the rehabilitation plan and the
continuing mortgages over Sarabia’s properties.32
The RTC Ruling
In anOrder33 dated August 7, 2003, the RTC approved Sarabia’s rehabilitation plan as
recommended by the Receiver, finding the same to be feasible. In this accord, it
observed that the rehabilitation plan was realistic since, based on Sarabia’s financial
history, it was shown that it has the inherent capacity to generate funds to pay its loan
obligations given the proper perspective.34 The recommended rehabilitation plan was
also practical in terms of the interest rate pegged at 6.75% p.a. since it is based on
Sarabia’s ability to pay and the creditors’ perceived cost of money. 35 It was likewise
found to be viable since, based on the extrapolations made by the Receiver, Sarabia’s
revenue projections, albeit projected to slow down, remained to have a positive
business/profit outlook altogether.36
The RTC further noted that while it may be true that Sarabia has been unable to comply
with its existing terms with BPI, it has nonetheless complied with its obligations to its
employees and suppliers and pay its taxes to both local and national government
without disrupting the day-to-day operations of its business as an on-going concern.37
More significantly, the RTC did not give credence to BPI’s opposition to the Receiver’s
recommended rehabilitation plan as neither BPI nor the Receiver was able to
substantiate the claim that BPI’s cost of funds was at the 10% p.a. threshold. In this
regard, the RTC gave more credence to the Receiver’s determination of fixing the
interest rate at 6.75% p.a., taking into consideration not only Sarabia’s ability to pay
based on its proposed interest rates, i.e., 7% to 14% p.a., but also BPI’s perceived cost
of money based on its own published interest rates for deposits, i.e., 1% to 4.75% p.a.,
as well as the rates for treasury bills, i.e., 5.498% p.a. and CB overnight borrowings,
i.e., 7.094%. p.a.38
The CA Ruling
In a Decision39 dated April 24, 2006, the CA affirmed the RTC’s ruling with the
modification of reinstating the surety obligations of Sarabia’s stockholders to BPI as an
additional safeguard for the effective implementation of the approved rehabilitation
plan.40 It held that the RTC’s conclusions as to the feasibility of Sarabia’s rehabilitation
was well-supported by the company’s financial statements, both internal and
independent, which were properly analyzed and examined by the Receiver. 41 It also
upheld the 6.75%. p.a. interest rate on Sarabia’s loans, finding the said rate to be
reasonable given that BPI’s interests as a creditor were properly accounted for. As
published, BPI’s time deposit rate for an amount of ₱5,000,000.00 (with a term of 360-
364 days) is at 5.5% p.a.; while the benchmark ninety one-day commercial paper, which
banks used to price their loan averages to 6.4% p.a. in 2005, has a three-year average
rate of 6.57% p.a.42 As such, the 6.75% p.a. interest rate would be higher than the
current market interest rates for time deposits and benchmark commercial papers.
Moreover, the CA pointed out that should the prevailing market interest rates change
as feared by BPI, the latter may still move for the modification of the approved
rehabilitation plan.43
Aggrieved, BPI moved for reconsideration which was, however, denied in a
Resolution44 dated December 6, 2006.
Hence, this petition.
The Issue Before the Court
The primordial issue raised for the Court’s resolution is whether or not the CA correctly
affirmed Sarabia’s rehabilitation plan as approved by the RTC, with the modification on
the reinstatement of the surety obligations of Sarabia’s stockholders.
BPI mainly argues that the approved rehabilitation plan did not give due regard to its
interests as a secured creditor in view of the imposition of a fixed interest rate of 6.75%
p.a. and the extended loan repayment period.45 It likewise avers that Sarabia’s
misrepresentations in its rehabilitation petition remain unresolved. 46
On the contrary, Sarabia essentially maintains that: (a) the present petition improperly
raises questions of fact;47 (b) the approved rehabilitation plan takes into consideration
all the interests of the parties and the terms and conditions stated therein are more
reasonable than what BPI proposes;48 and (c) BPI’s allegations of misrepresentation
are mere desperation moves to convince the Court to overturn the rulings of the courts
a quo.49
The Court’s Ruling
The petition has no merit.
A. Propriety of BPI’s petition;
procedural considerations.
It is fundamental that a petition for review on certiorari filed under Rule 45 of the Rules
of Court covers only questions of law. In this relation, questions of fact are not
reviewable and cannot be passed upon by the Court unless, the following exceptions
are found to exist: (a) when the findings are grounded entirely on speculations,
surmises, or conjectures; (b) when the inference made is manifestly mistaken, absurd,
or impossible; (c) when there is a grave abuse of discretion; (d) when the judgment is
based on misappreciation of facts; (e) when the findings of fact are conflicting; (f) when
in making its findings, the same are contrary to the admissions of both parties; (g) when
the findings are contrary to those of the trial court; (h) when the findings are conclusions
without citation of specific evidence on which they are based; (i) when the facts set forth
in the petition as well as in the petitioner’s main and reply briefs are not disputed by the
respondent; and (j) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record. 50
The distinction between questions of law and questions of fact is well-defined. A
question of law exists when the doubt or difference centers on what the law is on a
certain state of facts. A question of fact, on the other hand, exists if the doubt centers
on the truth or falsity of the alleged facts. This being so, the findings of fact of the CA
are final and conclusive and the Court will not review them on appeal.51
In view of the foregoing, the Court finds BPI’s petition to be improper – and hence,
dismissible52 – as the issues raised therein involve questions of fact which are beyond
the ambit of a Rule 45 petition for review.
To elucidate, the determination of whether or not due regard was given to the interests
of BPI as a secured creditor in the approved rehabilitation plan partakes of a question
of fact since it will require a review of the sufficiency and weight of evidence presented
by the parties – among others, the various financial documents and data showing
Sarabia’s capacity to pay and BPI’s perceived cost of money – and not merely an
application of law. Therefore, given the complexion of the issues which BPI presents,
and finding none of the above-mentioned exceptions to exist, the Court is constrained
to dismiss its petition, and prudently uphold the factual findings of the courts a quo
which are entitled to great weight and respect, and even accorded with finality. This
especially obtains in corporate rehabilitation proceedings wherein certain commercial
courts have been designated on account of their expertise and specialized knowledge
on the subject matter, as in this case.
In any event, even discounting the above-discussed procedural considerations, the
Courts still finds BPI’s petition lacking in merit.
B. Approval of Sarabia’s
rehabilitation plan; substantive
considerations.
Records show that Sarabia has been in the hotel business for over thirty years, tracing
its operations back to 1972. Its hotel building has been even considered a landmark in
Iloilo, being one of its kind in the province and having helped bring progress to the
community.23 Since then, its expansion was continuous which led to its decision to
commence with the construction of a new hotel building. Unfortunately, its contractor
defaulted which impelled Sarabia to take-over the same. This significantly skewed its
projected revenues and led to various cash flow difficulties, resulting in its incapacity to
meet its maturing obligations.
Recognizing the volatile nature of every business, the rules on corporate rehabilitation
have been crafted in order to give companies sufficient leeway to deal with debilitating
financial predicaments in the hope of restoring or reaching a sustainable operating form
if only to best
accommodate the various interests of all its stakeholders, may it be the corporation’s
stockholders, its creditors and even the general public. In this light, case law has
defined corporate rehabilitation as an attempt to conserve and administer the assets of
an insolvent corporation in the hope of its eventual return from financial stress to
solvency. It contemplates the continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and
liquidity. Verily, the purpose of rehabilitation proceedings is to enable the company to
gain a new lease on life and thereby allow creditors to be paid their claims from its
earnings.54Thus, rehabilitation shall be undertaken when it is shown that the continued
operation of the corporation is economically more feasible and its creditors can recover,
by way of the present value of payments projected in the plan, more, if the corporation
continues as a going concern than if it is immediately liquidated. 55
Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim
Rules of Procedure on Corporate Rehabilitation56 (Interim Rules) states that a
rehabilitation plan may be approved even over the opposition of the creditors holding a
majority of the corporation’s total liabilities if there is a showing that rehabilitation is
feasible and the opposition of the creditors is manifestly unreasonable. Also known as
the "cram-down" clause, this provision, which is currently incorporated in the FRIA, 57 is
necessary to curb the majority creditors’ natural tendency to dictate their own terms
and conditions to the rehabilitation, absent due regard to the greater long-term benefit
of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and
conditions of the rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery.
It is within the parameters of the aforesaid provision that the Court examines the
approval of Sarabia’s rehabilitation.
i. Feasibility of Sarabia’s rehabilitation.
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative
that a thorough examination and analysis of the distressed corporation’s financial data
must be conducted. If the results of such examination and analysis show that there is
a real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the other hand, if the results
of the financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation.58 As further guidance on the matter, the Court’s
pronouncement in Wonder Book Corporation v. Philippine Bank of
Communications59 proves instructive:
Rehabilitation is x x x available to a corporation [which], while illiquid, has assets that
can generate more cash if used in its daily operations than sold. Its liquidity issues can
be addressed by a practicable business plan that will generate enough cash to sustain
daily operations, has a definite source of financing for its proper and full implementation,
and anchored on realistic assumptions and goals. This remedy should be denied to
corporations whose insolvency appears to be irreversible and whose sole purpose is to
delay the enforcement of any of the rights of the creditors, which is rendered obvious
by the following: (a) the absence of a sound and workable business plan; (b) baseless
and unexplained assumptions, targets and goals; (c) speculative capital infusion or
complete lack thereof for the execution of the business plan; (d) cash flow cannot
sustain daily operations; and (e) negative net worth and the assets are near full
depreciation or fully depreciated.60 (Emphasis and underscoring supplied)
Keeping with these principles, the Court thus observes that:
First, Sarabia has the financial capability to undergo rehabilitation.
Based on the Receiver’s Report, Sarabia’s financial history shows that it has the
inherent capacity to generate funds to repay its loan obligations if applied through the
proper financial framework. The Receiver’s examination and analysis of Sarabia’s
financial data reveals that the latter’s business is not only an on-going but also a
growing concern. Despite its financial constraints, Sarabia likewise continues to be
profitable with its hotelier business as its operations have not been disrupted. 61 Hence,
given its current fiscal position, the prospect of substantial and continuous revenue
generation is a realistic goal.
Second, Sarabia has the ability to have sustainable profits over a long period of time.
As concluded by the Receiver, Sarabia’s projected revenues shall have a steady year-
on-year growth from the time that it applied for rehabilitation until the end of its
rehabilitation plan in 2018, albeit with decreasing growth rates (growth rate is at 26%
in 2003, 5% in 2004-2007, 3% in 2008-2018).62 Should such projections come through,
Sarabia would have the ability not just to pay off its existing debts but also to carry on
with its intended expansion. The projected sustainability of its business, as mapped out
in the approved rehabilitation plan, makes Sarabia’s rehabilitation a more viable option
to satisfy the interests of its stakeholders in the long run as compared to its immediate
liquidation.
Third, the interests of Sarabia’s creditors are well-protected.
As correctly perceived by the CA, adequate safeguards are found under the approved
rehabilitation plan, namely: (a) any deficiency in the required minimum payments to
creditors based on the presented amortization schedule shall be paid personally by
Sarabia’s stockholders;
(b) the conversion of the advances from stockholders amounting to ₱18,748,306.00
and deferred credits amounting to ₱42,688,734 as of the December 31, 2002 tentative
audited financial statements to stockholder’s equity was granted; 64 (c) all capital
expenditures which are over and above what is provided in the cash flow of the
approved rehabilitation plan which will materially affect the cash position of the hotel
but which are deemed necessary in order to maintain the hotel’s competitiveness in the
industry shall be subject to the approval by the Court prior to implementation; 65 (d) the
formation of Sarabia’s new management team and the requirement that the latter shall
be required to submit a comprehensive business plan to support the generation of
revenues as reported in the Rehabilitation Plan, both short term and long term; 66 (e)
the maintenance of all Sarabia’s existing real estate mortgages over hotel properties
as collaterals and securities in favor of BPI until the former’s full and final liquidation of
its outstanding loan obligations with the latter;67 and (f) the reinstatement of the
comprehensive surety agreement of Sarabia’s stockholders regarding the former’s debt
to BPI.68 With these terms and conditions69 in place, the subsisting obligations of
Sarabia to its creditors would, more likely than not, be satisfied.
Therefore, based on the above-stated reasons, the Court finds Sarabia’s rehabilitation
to be feasible.
ii. Manifest unreasonableness of BPI’s opposition.
Although undefined in the Interim Rules, it may be said that the opposition of a
distressed corporation’s majority creditor is manifestly unreasonable if it counter-
proposes unrealistic payment terms and conditions which would, more likely than not,
impede rather than aid its rehabilitation. The unreasonableness becomes further
manifest if the rehabilitation plan, in fact, provides for adequate safeguards to fulfill the
majority creditor’s claims, and yet the latter persists on speculative or unfounded
assumptions that his credit would remain unfulfilled.
While Section 23, Rule 4 of the Interim Rules states that the rehabilitation court shall
consider certain incidents in determining whether the opposition is manifestly
unreasonable,70 BPI neither proposes Sarabia’s liquidation over its rehabilitation nor
questions the controlling interest of Sarabia’s shareholders or owners. It only takes
exception to: (a) the imposition of the fixed interest rate of 6.75% p.a. as recommended
by the Receiver and as approved by the courts a quo, proposing that the original
escalating interest rates of 7%, 8%, 10%, 12%, and 14%, over seventeen years be
applied instead;71 and (b) the fact that Sarabia’s misrepresentations in the rehabilitation
petition, i.e., that it physically acquired additional property whereas in fact the increase
was mainly due to the recognition of Revaluation Increment and because of capital
expenditures, were not taken into consideration by the courts a quo. 72
Anent the first matter, it must be pointed out that oppositions which push for high
interests rates are generally frowned upon in rehabilitation proceedings given that the
inherent purpose of a rehabilitation is to find ways and means to minimize the expenses
of the distressed corporation during the rehabilitation period. It is the objective of a
rehabilitation proceeding to provide the best possible framework for the corporation to
gradually regain or achieve a sustainable operating form. Hence, if a creditor, whose
interests remain well-preserved under the existing rehabilitation plan, still declines to
accept interests pegged at reasonable rates during the period of rehabilitation, and, in
turn, proposes rates which are largely counter-productive to the rehabilitation, then it
may be said that the creditor’s opposition is manifestly unreasonable.
increment.74 Proceeding from this fact, the CA observed that BPI actually failed to
establish its claimed defects in light of Sarabia’s assertive and forceful explanation that
the alleged inaccuracies do not warrant the dismissal of its petition.75 Thus, absent any
compelling reason to disturb the CA's finding on this score, the Court deems it proper
to dismiss BPI's allegations of misrepresentation against Sarabia.
As a final point, BPI claims that Sarabia's projections were "too optimistic," its
management was "extremely incompetent"76 and that it was even forced to pay a pre-
termination penalty due to its previous loan with the Landbank of the
Philippines.77 Suffice it to state that bare allegations of fact should not be entet1ained
as they are bereft of any probative value.78 In any event, even if it is assumed that the
said allegations are substantiated by clear and convincing evidence, the Court, absent
any cogent basis to proceed otherwise, remains steadfast in its preclusion to thresh out
matters of fact on a Rule 45 petition, as in this case.
All told, Sarabia's rehabilitation plan, as approved and modified by the CA, is hereby
sustained. In view of the foregoing pronouncements, the Court finds it unnecessary to
delve on the other ancillary issues as herein raised.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated April 24, 2006
and Resolution dated December 6, 2006 of the Court of Appeals, Cebu City in CA-G.R.
CV. No. 81596 are hereby AFFIRMED.
SO ORDERED.

In this case, the Court finds BPI’s opposition on the approved interest rate to be
manifestly unreasonable considering that: (a) the 6.75% p.a. interest rate already
constitutes a reasonable rate of interest which is concordant with Sarabia’s projected
rehabilitation; and (b) on the contrary, BPI’s proposed escalating interest rates remain
hinged on the theoretical assumption of future fluctuations in the market, this
notwithstanding the fact that its interests as a secured creditor remain well-preserved.

The following observations impel the foregoing conclusion: first, the 6.75% p.a. interest
rate is actually higher than BPI’s perceived cost of money as evidenced by its published
time deposit rate (for an amount of ₱5,000,000.00, with a term of 360-364 days) which
is only set at 5.5% p.a.; second, the 6.75% p.a. is also higher than the benchmark
ninety one-day commercial paper, which is used by banks to price their loan averages
to 6.4% p.a. in 2005, and has a three-year average rate of 6.57% p.a.; and third, BPI’s
interests as a secured creditor are adequately protected by the maintenance of all
Sarabia’s existing real estate mortgages over its hotel properties as collateral as well
as by the reinstatement of the comprehensive surety agreement of Sarabia’s
stockholders, among other terms in the approved rehabilitation plan.

As to the matter of Sarabia’s alleged misrepresentations, records disclose that Sarabia

already clarified its initial statements in its rehabilitation petition by submitting, on its
own accord, a supplemental affidavit dated October 24, 200273 that explains that the
increase in its properties and assets was indeed by recognition of revaluation
G.R. No. 187581 October 20, 2014
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,
vs.
BASIC POLYPRINTERS AND PACKAGING CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
This appeal is taken from the decision promulgated on December 16, 2008 in C.A.-
G.R. CV No. I 02484 entitled Philippine Bank of Communications, v. Basic Polyprinters
and Packaging Corporation,1 whereby the Court of Appeals (CA) affirmed the order
issued on January 11, 2008 by the Regional Trial Court (RTC), Branch 21, in Imus,
Cavite, viz:
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Order
dated January 11, 2008 of the Regional Trial Court oflmus, Cavite, Branch 21, is hereby
AFFIRMED.
SO ORDERED.2
Antecedents
Respondent Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a
domestic corporation engaged in the business of printing greeting cards, gift wrappers,
gift bags, calendars, posters, labels and other novelty items.3
On February 27, 2004, Basic Polyprinters, along with the eight other corporations
belonging to the Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine
Arts International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong
Corporation, Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and
Wonder Book Corporation), filed a joint petition for suspension of paymentswith
approval of the proposed rehabilitation in the RTC (docketed as SEC Case No. 031-
04).4 The RTC issued a stay order, and eventually approved the rehabilitation plan, but
the CA reversed the RTC on October 25, 2005,5 and directed the petitioning
corporations tofile their individual petitions for suspension of payments and
rehabilitation in the appropriate courts.
Accordingly, Basic Polyprinters brought its individual petition,6 averring therein that: (a)
its business since incorporation had been very viable and financially profitable; (b) it
had obtained loans from various banks, and had owed accounts payable to various
creditors; (c) the Asian currency crisis, devaluation of the Philippine peso, and the
current state of affairs of the Philippine economy, coupled with: (i) high interest rates,
penalties and charges by its creditors; (ii) low demand for gift items and cards due to
the economic recession and the use of cellular phones; (iii) direct competition from
stores like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002
that had destroyed its warehouse containing inventories worth ₱264,000,000.00,
resulting in difficulty of meeting its obligations; (d) its operations would be hampered
and would render rehabilitation difficult should its creditors enforce their claims through
legal actions, including foreclosure proceedings; (e) included in its overall Rehabilitation
Program was the full payment of its outstanding loans in favor of petitioner Philippine
Bank of Communications (PBCOM), RCBC, Land Bank, EPCI Bank and AUB via
repayment over 15 years with moratorium of two-years for the interestand five years for
the principal at 5% interest per annumand a dacion en pagoof its affiliate property in
favor of EPCI Bank; and (f) its assets worth ₱15,374,654.00 with net liabilities
amounting to ₱13,031,438.00.7
Finding the petition sufficient in formand substance, the RTC issued the stay order
dated August 31, 2006.8 It appointed Manuel N. Cacho III as the rehabilitation receiver,
and required all creditors and interested parties, including the Securities and Exchange
Commission (SEC), to file their comments.
After the initial hearing and evaluation of the comments and opposition of the creditors,
including PBCOM, the RTC gave due course to the petition and referred it to the
rehabilitation receiver for evaluation and recommendation.9
On October 18, 2007, the rehabilitation receiver submitted his report recommending
the approval of the rehabilitation plan. On December 19, 2007, the rehabilitation
receiver submitted his clarifications and corrections to his report and
recommendations.10
Ruling of the RTC
On January 11, 2008, the RTC issued an order approving the rehabilitation plan,11 the
pertinent portion of which reads:
Petitioner’s primary business is in the printing business. Based on its updated financial
report, the financial condition has greatly improved.
However, because of the indebtedness and the slowdown in sales brought about by a
depressed economy, the present income from the operations will be insufficient to pay
off its maturing obligations. Thus, the success of the rehabilitation planlargely depends
on its ability to reduce its debt obligation to a manageable level by the suspension of
payments of obligations and the proposed "dacion en pago."
The projected cash flow attached to the report and the repayment program
demonstrates the ability of the company to settle its debt liability.
Other factors which justify the approval of the Rehabilitation Plan are as follows:
1. The petitioner has a positive net worth and inventory that can be converted
into resources.
2. The Plan ensures preservation of assets, optimizes recovery of creditors’
claims and provides ofan orderly payment of debts.
 3. The plan will restore petitioner to profitability and solvency and maintain it
as an on-going concern to the benefit of the stockholders, investors and
creditors.
4. The rehabilitation and the continuous operation of the company will
generate employment.
5. The plan is endorsed by the Rehabilitation Receiver.
CONSIDERING THE FOREGOING, the Court hereby approves the detailed
Rehabilitation Plan including the Receiver’s Report and Recommendations and its
clarifications and corrections and enjoins the petitioner to comply strictly with the
provisions of the plan, perform its obligations thereunder and take all actions necessary
to carry out the plan, failing which, the Court shall either, upon motion, motu proprio or
upon the recommendation of the Rehabilitation Receiver, terminate the proceedings
pursuant to Section 27, Rule 1 of the Interim Rules of Procedure on Corporate
Rehabilitation.
The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan
and submit a quarterly report on the progress thereon.
SO ORDERED.
PBCOM appealed to the CA in due course.
Ruling of the CA
In the assailed decision promulgated on December 16, 2008,12 the CA affirmed the
questioned order of the RTC, agreeing with the finding of the rehabilitation receiver that
there were sufficient evidence, factors and actual opportunities in the rehabilitation plan
indicating that Basic Polyprinters could be successfully rehabilitated in due time. 13
Emphasizing the equitable and rehabilitative purposes of rehabilitation proceedings,
the CA stated that Presidential Decree No. 902-A, as amended, sought to "effect a
feasible and viable rehabilitation by preserving a foundering business as going
concern" because it would be more valuable to preserve the assets of the
corporation14 rather than to pursue its liquidation; and observed in closing:
One last word. The purpose of rehabilitation proceedings is to enable the company to
gain new lease on life and thereby allows creditors to be paid their claims from its
earnings. Rehabilitation contemplates a continuance of corporate life and activities in
an effort to restore and reinstate the financially distressed corporation to its former
position of successful operation and solvency. This is in consonance with the State’s
objective to promote a wider and moremeaningful equitable distribution of wealth to
protect investments and the public. The approval of the Rehabilitation Plan by the trial
court is precisely in furtherance of the rationale behind the Interim Rules of Corporate
Rehabilitation is to effect a feasible and viable rehabilitation ofailing corporations which
affect the public welfare.15
PBCOM moved for reconsideration,16 but its motion was denied.
Issues
Hence, this appeal by PBCOM upon the following issues, namely:
I
THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING PETITIONER’S
PETITION FOR REVIEW AND AFFIRMING THE ORDER DATED JANUARY 11, 2008,
CONSIDERING THAT:
A
A PETITION FILED PURSUANT TO THE INTERIM RULES OF PROCEDURE ON
CORPORATE REHABILITATION PRESUPPOSES THAT THE PETITIONING
CORPORATION HAS SUFFICIENT PROPERTY TO COVER ALL ITS
INDEBTEDNESS. RESPONDENT IS INSOLVENT AS ITS ASSETS ARE LESS THAN
ITS OBLIGATIONS;
B
THE "DETAILED REHABILITATION PLAN" DOES NOT PROVIDE MATERIAL
FINANCIAL COMMITMENTS FROM RESPONDENT ITSELF OR WOULD-BE
INVESTORS
C
THE TERMS AND CONDITIONS OF THE "APPROVED REHABILITATION PLAN"
ARE TOO ONEROUS PARTICULARLY THE REHABILITATION TERM OF FIFTEEN
(15) YEARS AS WELL AS THE "WAIVER" OF ALL INTEREST AND PENALTIES
BEGINNING FEBRUARY 2004 UPTO THE TIME OF ITS APPROVAL. 17
The petitioner claims that the CA did not pass upon the issues presented in its petition,
particularly Basic Polyprinters’ liquidity that was material in proceedings for corporate
rehabilitation; that a petition for rehabilitation presupposed that the petitioning
corporation had sufficient property to cover all its indebtedness, but Basic Polyprinters
did not show so because its assets were much less thanits outstanding obligations; that
Basic Polyprinters had under-declared its outstanding loans, i.e., its total loan
obligations with the petitioner was at ₱118,411,702.70 as of June 30, 2006, and not
just ₱71,315,086.00 as it claimed; that the independent appraisal by the Professional
Asset Valuers, Inc. (PAVI) on Basic Polyprinters’ machineries and printing equipment
mortgaged to it (PBCOM) had a fair market value of only ₱6,531,000.00, and a prompt
sale value of only ₱4,572,000.00, as compared to the fair market value of
₱15,110,000.00 declared by Basic Polyprinters; that the rehabilitation plandid not
contain the material financial commitments required by Section 5, Rule 4 of the Interim
Rules of Procedure for Corporate Rehabilitation (Interim Rules); that, accordingly, the
proposed repayment scheme did not constitute a material financial commitment, and
the proposed dacion en pagowas not proper because the property subject thereof had
been mortgaged in its favor; and that the absence of capital infusion rendered
impossible the proposal to invest in new machineries that would increase sales and
improve quality and capacity.18
The petitioner posits that the assailed decision of the CA effectively gave Basic
Polyprinters a moratoriumfor seven years on both interest and principal payments
counted from the issuance of the stay order in 2004 that effectively prejudiced its
creditors.19
Basic Polyprinters refutes the petitioner, saying that the petitioner raises factual issues
improper under Rule 45 of the Rules of Court; that as long as the rehabilitation court
found that the petitioning corporation could still be rehabilitated, its findings of fact
should be binding when they were supported by substantial evidence; that the
independent appraisal report by PAVI was unauthorized by the RTC; and that the
validity of the rehabilitation plan could be upheld for its complete satisfaction of the
requirements of Section 5, Rule4 of the Interim Rules.
In fine, we shall determine whether the approval of the rehabilitation plan was proper
despite: (a) the alleged insolvency of Basic Polyprinters; and (b) absence of a material
financial commitment pursuant to Section 5, Rule 4 of the Interim Rules.
Ruling
We reverse the judgment of the CA.
I II
Liquidity was not an issue in a petition for rehabilitation
The petitioner contends that the sole issue in corporate rehabilitation is one of liquidity;
hence, the petitioning corporation should have sufficient assets to cover all its
indebtedness because it only foresees the impossibility of paying the indebtedness
falling due. It claims that rehabilitation became inappropriate because Basic
Polyprinters was insolvent due to its assets being inadequate to cover the outstanding
obligations.20
We disagree with the contention of the petitioner.
Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a
position of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present
value of payments projected in the plan more if the corporation continues as a going
concern that if it is immediately liquidated."21 It contemplates a continuance ofcorporate
life and activities in an effort to restore and reinstate the corporation to its former
position of successful operation and solvency.22
In Asiatrust Development Bank v. First Aikka Development, Inc., 23 we said that
rehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and
equitably distribute the assets of the insolvent debtor to its creditors; and (b) to provide
the debtor with a fresh start, viz: Rehabilitation proceedings in our jurisdiction have
equitable and rehabilitative purposes. On the one hand, they attempt to provide for the
efficient and equitable distribution ofan insolvent debtor's remaining assets to its
creditors; and on the other, to provide debtors with a "fresh start" by relieving them of
the weight of their outstanding debts and permitting them to reorganize their affairs.
The purpose of rehabilitation proceedings is to enable the company to gain a new lease
on life and thereby allow creditors to be paidtheir claims from its earnings.24
Consequently, the basic issues inrehabilitation proceedings concern the viability and
desirability of continuing the business operations of the petitioning corporation. The
determination of such issues was to be carried out by the court-appointed rehabilitation
receiver,25 who was Cacho in this case.
Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA)
of 2010), a law that is applicable hereto, 26 has defined a corporate debtor as a
corporation duly organized and existing under Philippine laws that has become
insolvent.27 The term insolventis defined in Republic Act No. 10142 as "the financial
condition of a debtor that is generally unable to pay its or his liabilities as they fall due
in the ordinary course of business or has liabilities that are greater than its or his
assets."28
As such, the contention that rehabilitation becomes inappropriate because of the
perceived insolvency of BasicPolyprinters was incorrect.
A material financial commitment is significant in a rehabilitation plan
The petitioner next argues that Basic Polyprinters did not present any material financial
commitment in the rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim
Rules, the rule applicable at the time of the filing of the petition for rehabilitation. In that
regard, Basic Polyprinters made no commitment in relation to the infusion of fresh
capital by its stakeholders,29 and presented only a "lopsided" protracted repayment
schedule that included the dacion en pago involving an asset mortgaged to the
petitioner itself in favor of another creditor.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith ofthe distressed corporation in financing the
proposed rehabilitation plan.30 This commitment may include the voluntary
undertakings ofthe stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the
period of rehabilitation.31
Basic Polyprinters presented financial commitments, as follows:
 (a) Additional ₱10 million working capital to be sourced from the insurance
claim;
(b) Conversion of the directors’ and shareholders’ deposit for future
subscription to common stock;32
(c) Conversion of substituted liabilities, if any, to additional paid-in capital to
increase the company’s equity; and
(d) All liabilities (cash advances made by the stockholders) of the company
from the officers and stockholders shall be treated as trade payables. 33
However, these financial commitments were insufficient for the purpose.1âwphi1 We
explain.
The commitment to add ₱10,000,000.00 working capital appeared to be doubtful
considering that the insurance claim from which said working capital would be sourced
had already been written-off by Basic Polyprinters’s affiliate, Wonder Book
Corporation.34 A claim that has been written-off is considered a bad debt or a worthless
asset,35 and cannot be deemed a material financial commitment for purposes of
rehabilitation. At any rate, the proposed additional ₱10,000,000.00 working capital was
insufficient to cover at least half ofthe shareholders’ deficit that amounted to
₱23,316,044.00 as of June 30, 2006.
We also declared in Wonder Book Corporation v. Philippine Bank of Communications
(Wonder Book)36 that the conversion of all deposits for future subscriptions to common
stock and the treatment of all payables to officers and stockholders as trade payables
was hardly constituting material financial commitments. Such "conversion" of cash
advances to trade payables was, in fact, a mere re-classification of the liability entry
and had no effect on the shareholders’ deficit. On the other hand, we cannot determine
the effect of the "conversion"of the directors’ and shareholders’ deposits for future
subscription to common stock and substituted liabilities on the shareholders’ deficit
because their amounts were not reflected in the financial statements contained in the
rollo.
Worthy of note here is that Wonder Book Corporation was a sister company of Basic
Polyprinters, being one of the corporations that had filed the joint petition for suspension
of payments and rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of
them submitted identical commitments in their respective rehabilitation plans. As a
result, as the Court observed in Wonder Book,37 the commitments by Basic Polyprinters
could not be considered as firm assurances that could convince creditors, future
investors and the general public of its financial and operational viability.
Due to the rehabilitation plan being an indispensable requirement in corporate
rehabilitation proceedings,38 Basic Polyprinters was expected to exert a conscious
effort in formulating the same, for such plan would spell the future not only for itself but
also for its creditors and the public in general. The contents and execution of the
rehabilitation plan could not be taken lightly. We are not oblivious to the plight of
corporate debtors like Basic Polyprinters that have inevitably fallen prey to economic
recession and unfortunate incidents in the course of their operations. However, we must
endeavor to balance the interests of all the parties that had a stake in the success of
rehabilitating the debtors. In doing so here, we cannot now find the rehabilitation plan
for Basic Polyprinters to be genuine and in good faith, for it was, in fact, unilateral and
detrimental to its creditors and the public.
ACCORDINGLY, the Court GRANTS the petition for review on certiorari; SETS ASIDE
and REVERSES the decision promulgated on December 16, 2008 and the resolution
promulgated on April 22, 2009, both by the Court of Appeals, as well as the order issued
on January 11, 2008 by the Regional Trial Court approving the rehabilitation plan
submitted by Basic Polyprinters and Packaging Corporation; DISMISSES the petition
for suspension of payments and rehabilitation of Basic Polyprinters and Packaging
Corporation; and DIRECTS Basic Polyprinters and Packaging Corporation to pay the
costs of suit.
SO ORDERED.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it
intended to address the low demands for their products and the effect of direct
competition from stores like SM, Gaisano, Robinsons, and other malls. Even the ₱245
million insurance claim that was supposed to cover the destroyed inventories worth
₱264 million appears to have been written-off with no probability of being realized later
on.

We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en pagoto
create a source of "fresh capital" was not feasible because the object thereof would not
be its own property but one belonging to its affiliate, TOL Realty and Development
Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations
(for the return of books and magazines from Basic Polyprinters’s trade creditors) did
not partake of a voluntary undertaking because no actual financial commitments had
been made thereon.
G.R. No. 184317
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
LIBERTY CORRUGATED BOXES MANUFACTURING CORPORATION,
Respondent.
DECISION
LEONEN, J.:
A corporation with debts that have already matured may still file a petition for
rehabilitation under the Interim Rules of Procedure on Corporation Rehabilitation.
This resolves a Petition for Review1 on certiorari assailing the Court of Appeals' June
13, 2008 Decision2 and August 20, 2008 Resolution.3 The Court of Appeals affirmed
the Regional Trial Court's December 21, 2007 Order 4approving Liberty Corrugated
Boxes Manufacturing Corp.'s rehabilitation plan.
Respondent Liberty Corrugated Boxes Manufacturing Corp. (Liberty) is a domestic
corporation that produces corrugated packaging boxes. 5 It obtained various credit
accommodations and loan facilities from petitioner Metropolitan Bank and Trust
Company (Metrobank) amounting to ₱19,940,000.00. To secure its loans, Liberty
mortgaged to Metrobank 12 lots in Valenzuela City. 6
Liberty defaulted on the loans. 7
On June 21, 2007, Liberty filed a Petition8 for corporate rehabilitation before Branch 74
of the Regional Trial Court of Malabon City. Liberty claimed that it could not meet its
obligations to Metrobank because of the Asian Financial Crisis, which resulted in a
drastic decline in demand for its goods, and the serious sickness of its Founder and
President, Ki Kiao Koc.9
Liberty's rehabilitation plan consisted of: (a) a debt moratorium; (b) renewal of
marketing efforts; (c) resumption of operations; and (d) entry into condominium
development, a new business.10
On June 27, 2007, the Regional Trial Court, finding the Petition sufficient in form and
substance, issued a Stay Order11 and set an initial hearing for the Petition. On August
6, 2007, Metro bank filed its Comment/Opposition. It argued that Liberty was not
qualified for corporate rehabilitation; that Liberty's Petition for rehabilitation and
rehabilitation plan were defective; and that rehabilitation was not feasible. It also
claimed that Liberty filed the Petition solely to avoid its obligations to the bank.
In its September 20, 2007 Order, 12 the Regional Trial Court gave due course to the
Petition and referred the rehabilitation plan to the Rehabilitation Receiver.
Rehabilitation Receiver Rafael Chris F. Teston recommended the approval of the plan,
provided that Liberty would initiate construction on the property in Valenzuela within 12
months from approval. 13
In its December 21, 2007 Order, 14 the Regional Trial Court approved the rehabilitation
plan. The trial court found that Liberty was capable of being rehabilitated and that the
rehabilitation plan was feasible and viable. 15
Metrobank appealed to the Court of Appeals. On June 13, 2008, the Court of Appeals
issued the Decision16 denying the Petition and affirming the Regional Trial Court's
December 21, 2007 Order.
The Court of Appeals affirmed the Regional Trial Court's finding that debtor
corporations could still avail themselves of the remedy of rehabilitation under the Interim
Rules of Procedure on Corporate Rehabilitation (Interim Rules) even if they were
already in default. 17 It held that even insolvent corporations could still file a petition for
rehabilitation.18
The Court of Appeals also found that the trial court correctly approved the rehabilitation
plan over Metrobank's Opposition upon the recommendation of the Rehabilitation
Receiver, who had carefully considered and addressed Metrobank's criticism on the
plan's viability. 19
The Court of Appeals stressed that the purpose of rehabilitation proceedings is to
enable the distressed company to gain a new lease on life and to allow the creditors to
be paid their claims. It held that the approval of the Regional Trial Court was precisely
"'to effect a feasible and viable rehabilitation' of ailing corporations[,]"20 as required by
Presidential Decree No. 902-A.
Metrobank moved for reconsideration, but the Motion was denied21 on August 20, 2008.
Hence, this Petition was filed.
This Court required respondent Liberty Corrugated Boxes Manufacturing Corp. to file
its comment on the Petition within 10 days from notice.22 On March 23, 2009,
respondent filed its Comments to the Petition,23 noted by this Court in its April 20, 2009
Resolution.24 Petitioner Metropolitan Bank and Trust Company filed its Reply25 dated
May 26, 2009, which this Court noted in its July 20, 2009 Resolution. 26 This Court also
gave due course to the Petition and required the parties to submit their respective
memoranda within 30 days from notice.
The parties filed their Memoranda on September 24, 200927 and November 3, 2009.28
Petitioner argues that respondent can no longer file a petition for corporate
rehabilitation. It claims that Rule 4, Section 1 of the Interim Rules restricts the kind of
debtor who can file petitions for corporate rehabilitation. 29Petitioner insists that the
phrase "who fore sees the impossibility of meeting its debts when they respectively fall
due" must be construed plainly to mean that an element of foresight is
required.30 Because foresight is required, the debts of the corporation should not have
matured. 31
Petitioner also argues that the Regional Trial Court's approval of the rehabilitation plan
is contrary to Rule 4, Section 23 of the Interim Rules.32 Under the provision, the court
may approve the rehabilitation plan over the opposition of the creditors only when two
(2) elements concur: (a) when the court finds that the rehabilitation of the debtor is
feasible; and (b) when the opposition of the creditors is "manifestly
unreasonable."33 Petitioner claims that the Regional Trial Court did not declare the
manifest unreasonableness of petitioner's opposition. 34
Petitioner likewise argues that respondent's Petition for rehabilitation and the attached
inventory of accounts receivable failed to disclose the maturity dates of the
accounts.35 This failure renders the Petition defective under Rule 4, Section 2(d) of the
Interim Rules.36
Petitioner further claims that the rehabilitation plan lacked material financial
commitments required under Rule 4, Section 5 of the Interim Rules.37 The rehabilitation
plan did not claim that new money would be invested in the corporation.38
On the other hand, respondent insists on its qualification to seek rehabilitation.39 It
argues that petitioner's reading of Rule 4, Section 1 of the Interim Rules is restrictive,
merely indicating the minimum conditions for a debtor to be able to file a petition for
rehabilitation.40
In support of its claim that the remedy of corporate rehabilitation covers defaulting
debtors, respondent cites Rule 4, Sections 441 and 642 of the Interim Rules.43 Under
Section 6, a stay order, which may assume that cases have been filed to collect on
matured debts, may be granted.
Respondent argues that the Court of Appeals' finding that the rehabilitation plan is
feasible is well-grounded and in keeping with Rule 4, Section 23 of the Interim
Rules.44 The Rehabilitation Receiver deemed the rehabilitation plan viable. 45 The
Petition also listed the receivables, clearly due for collection, in its annexes.46
Respondent further contends that contrary to petitioner's arguments, the rehabilitation
plan contains material financial commitments.47 When the Interim Rules speak of
"material financial commitments to support the rehabilitation plan,"48 it does not mean
that the commitment must come from outside sources. The corporation's showing that
the rehabilitation plan can find sufficient funding should be sufficient.49
The issues for resolution are:
First, whether respondent, as a debtor in default, is qualified to file a petition for
rehabilitation under Presidential Decree No. 902-A and Rule 4, Section 1 of the Interim
Rules; and
Second, whether respondent's Petition for rehabilitation is sufficient in form and
substance and respondent's rehabilitation plan, feasible.
I.A
A corporation that may seek corporate rehabilitation is characterized not by its debt but
by its capacity to pay this debt.
Rule 4, Section 1 of the Interim Rules provides:
RULE4
Debtor-Initiated Rehabilitation
SECTION 1. Who May Petition. - Any debtor who foresees the impossibility of meeting
its debts when they respectively fall due, or any creditor or creditors holding at least
twenty-five percent (25%) of the debtor's total liabilities, may petition the proper
Regional Trial Court to have the debtor placed under rehabilitation.
Petitioner insists that the words of the Interim Rules are clear and must be given their
plain and literal meaning. A better interpretation requires scrutiny of the purpose behind
the enactment of the Interim Rules and its provisions.
Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation50reiterates the purpose of rehabilitation, which is to provide meritorious
corporations an opportunity for recovery:
Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a
position of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present
value of payments projected in the plan more if the corporation continues as a going
concern that if it is immediately liquidated." It contemplates a continuance of corporate
life and activities in an effort to restore and reinstate the corporation to its former
position of successful operation and solvency. 51 (Citations omitted)
As stated by the Court of Appeals in Philippine Bank of Communications, rehabilitation
is in line with the State's objective to promote a wider and more meaningful equitable
distribution of wealth. 52
In line with this objective, the Interim Rules provide for a liberal construction of its
provisions:
RULE2
Definition of Terms and Construction
....
SECTION 2. Construction. - These Rules shall be liberally construed to carry out the
objectives of Sections 5(d), 6(c) and 6(d) of Presidential Decree No. 902-A, as
amended, and to assist the parties in obtaining a just, expeditious, and inexpensive
determination of cases. Where applicable, the Rules of Court shall apply suppletorily to
proceedings under these Rules.
To adopt petitioner's interpretation would undermine the purpose of the Interim Rules.
There is no reason why corporations with debts that may have already matured should
not be given the opportunity to recover and pay their debtors in an orderly fashion. The
opportunity to rehabilitate the affairs of an economic entity, regardless of the status of
its debts, redounds to the benefit of its creditors, owners, and to the economy in
general. Rehabilitation, rather than collection of debts from a company already near
bankruptcy, is a better use of judicial rewards.
A.M. No. 08-8-1 O-SC53 further describes the remedy initiated by a petition for
rehabilitation:
[A] petition for rehabilitation, the procedure for which is provided in the Interim Rules of
Procedure on Corporate Recovery, should be considered as a special proceeding. It is
one that seeks to establish the status of a party or a particular fact. As provided in
section 1, Rule 4 of the Interim Rules on Corporate Recovery, the status or fact sought
to be established is the inability of the corporate debtor to pay its debts when they
fall due so that a rehabilitation plan, containing the formula for the successful recovery
of the corporation, may be approved in the end. It does not seek a relief from an injury
caused by another party. (Emphasis supplied)
Thus, the condition that triggers rehabilitation proceedings is not the maturation of a
corporation's debts but the inability of the debtor to pay these.
I.B
Where the law does not distinguish, neither should this Court. 54 Because the definition
under the Interim Rules is encompassing, 55 there should be no distinction whether a
claim has matured or otherwise.
Petitioner's proposed interpretation contradicts provisions of the Interim Rules, which
contemplate situations where a debtor corporation may already be in default. As
correctly pointed out by respondent, a creditor may possibly petition for the debtor's
rehabilitation for default on debts already owed.56
Rule 4, Section 1 of the Interim Rules does not specify what kind of debtor may seek
rehabilitation. The provision allows creditors holding 25% of the debtor corporation's
total liabilities to petition for the corporation's rehabilitation.
Further, Rule 4, Section 6 of the Interim Rules provides for a stay order "staying
enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise."57 A stay order, however, only applies to
the suspension of the enforcement of claims. Hence, claims, if proper, can still be
instituted in other proceedings. There may already be pending claims against a debtor
corporation for debts already matured.
In Spouses Sobrejuanite v. ASB Development, 58 the purpose of the stay order is to
preserve the rights of both the debtor corporation and its creditors:
The purpose for the suspension of the proceedings is to prevent a creditor from
obtaining an advantage or preference over another and to protect and preserve the
rights of party litigants as well as the interest of the investing public or creditors. Such
suspension is intended to give enough breathing space for the management committee
or rehabilitation receiver to make the business viable again, without having to divert
attention and resources to litigations in various fora. 59 (Emphasis supplied, citations
omitted)
The stay order prevents preference or advantage of creditors over others, including the
advantage that a creditor with matured money claims may have over one whose claims
are not in yet in default.
Rule 2, Section 1 of the Interim Rules defines the term "claim":
RULE 2
Definition of Terms and Construction
....
"Claim" shall include all claims or demands of whatever nature or character against a
debtor or its property, whether for money or otherwise.
The term "claim," which includes "all claims or demands of whatever nature or
character," is not limited to claims which have not yet defaulted.
This does not mean that those with secured claims against corporations undergoing
rehabilitation are deprived of the preference given them by law. Negros Navigation Co.,
Inc. v. Court of Appeals60enumerated the guidelines in the treatment of claims against
corporations undergoing rehabilitation:
1. All claims against corporations, partnerships, or associations that are pending before
any court, tribunal, or board, without distinction as to whether or not a creditor is
secured or unsecured, shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board, or body in accordance with the
provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement
of such preference is equally suspended upon the appointment of a management
committee, rehabilitation receiver, board, or body. In the event that the assets of the
corporation, partnership, or association are finally liquidated, however, secured and
preferred credits under the applicable provisions of the Civil Code will definitely have
preference over unsecured ones.61
While the corporation is undergoing rehabilitation, all claims, regardless of nature, are
suspended from enforcement. However, once the corporation has successfully
rehabilitated or finally liquidated, the enforcement of these secured claims takes
precedence.
In Negros Navigation Co., Tsuneishi Heavy Industries (Tsuneishi) filed a collection
case against Negros Navigation Co, Inc. (Negros Navigation) for repairman's lien, or
the unpaid services for the repair of its vessels. 62 The Regional Trial Court of Cebu
issued a writ of preliminary attachment against Negros Navigation's properties and held
that Tsuneishi's repairman's lien constituted a superior maritime lien. 63 Negros
Navigation then filed before the Regional Trial Court of Manila a petition for corporate
rehabilitation with prayer for suspension of payments, which the trial court, in issuing a
stay order, granted.64 On appeal, Tsuneishi argued before this Court that its maritime
liens were not covered by the stay order.65
This Court held that the admiralty proceeding was appropriately suspended under Rule
4, Section 6 of the Interim Rules, there being no exemptions or distinctions in the law
on what kinds of claims are covered by suspension:
The justification for the suspension of actions or claims, without distinction, pending
rehabilitation proceedings is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the "rescue" of the debtor company.
To allow such other actions to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation instead of being directed
toward its restructuring and rehabilitation.66 (Citations omitted)
Likewise, in Abrera v. Hon. Barza,67College Assurance Plan Philippines, Inc. (CAP)
sold pre-need educational plans, which guaranteed the payment of tuition and other
standard school fees.68 CAP suffered financial difficulties and failed to meet its
obligations under the plans.69 The CAP planholders then filed an action for specific
performance and/or annulment of contract against CAP, its directors, and its officers. 70
CAP filed a petition for rehabilitation, which the trial court deemed sufficient in form and
substance. 71 The trial court also issued a stay order. 72
Questioning the stay order and the petition for rehabilitation, the CAP planholders
argued that CAP was a pre-need corporation and that a trust relationship existed
between the corporation and the planholders. 73 They argued that because they did not
have a debtor-creditor relationship with CAP, CAP could not apply for rehabilitation,
and the stay order could not apply to the action for specific performance. 74
This Court held that CAP, a pre-need corporation already in default of its obligations to
the planholders, could file for rehabilitation:
Under the Interim rules, "debtor" shall mean "any corporation, partnership, or
association, whether supervised or regulated by the Securities and Exchange
Commission or other government agencies, on whose behalf a petition for
rehabilitation has been filed under these Rules."
The Interim Rules does not distinguish whether a pre-need corporation like CAP cannot
file a petition for rehabilitation before the RTC. Courts are not authorized to distinguish
where the Interim Rules makes no distinction.
Moreover, under the Interim Rules, "claim" shall include "all claims or demands of
whatever nature or character against a debtor or its property, whether for money or
otherwise." "Creditor" shall mean "any holder of a claim."
Hence, the claim of petitioners for payment of tuition fees from CAP is included in the
definition of "claims" under the Interim Rules. 75 (Emphasis in the original, citations
omitted)
In Express Investments III Private Ltd. and Export Development Canada v. Bayan
Telecommunications, Inc., 76Bayan Telecommunications, Inc. (Bayantel) defaulted on
its obligations to its creditors and reached a total of ₱35.928 billion in unpaid principal
and interest.77 One of its bank creditors filed a petition for rehabilitation. 78 The trial court
gave due course to the petition.79
This Court allowed Bayantel to undergo rehabilitation proceedings despite Bayantel's
status as a debtor corporation already in default. 80
The definition of "claim" and the nature of stay orders contemplate situations where
debtor corporations already in default may be under rehabilitation. Rule 4, Section 1
does not limit who may file a petition for rehabilitation.
I.C
The plain meaning doctrine cannot apply to Rule 4, Section 1 of the Interim Rules.
In Social Weather Stations, Inc. and Pulse Asia v. Commission on Elections:81
First, verba legis or the so-called plain-meaning rule applies only when the law is
completely clear, such that there is absolutely no room for interpretation. Its application
is premised on a situation where the words of the legislature are clear that its intention,
insofar as the facts of a case demand from the point of view of a contemporary
interpretative community, is neither vague nor ambiguous. This is a matter of judicial
appreciation. It cannot apply merely on a party's contention of supposed clarity and lack
of room for interpretation.
....
Second, statutory construction cannot lend itself to pedantic rigor that foments
absurdity. The dangers of inordinate insistence on literal interpretation are
commonsensical and need not be belabored. These dangers are by no means endemic
to legal interpretation. Even in everyday conversations, misplaced literal interpretations
are fodder for humor. A fixation on technical rules of grammar is no less innocuous. A
pompously doctrinaire approach to text can stifle, rather than facilitate, the legislative
wisdom that unbridled textualism purports to bolster.
Third, the assumption that there is, in all cases, a universal plain language is erroneous.
In reality, universality and uniformity of meaning is a rarity. A contrary belief wrongly
assumes that language is static. 82 (Citations omitted)
The context of the words of the statute should be considered to clarify inherent
ambiguities. Thus, in Chavez v. Judicial and Bar Council:83
Under the maxim noscitur a sociis, where a particular word or phrase is ambiguous in
itself or is equally susceptible of various meanings, its correct construction may be
made clear and specific by considering the company of words in which it is founded or
which it is associated. This is because a word or phrase in a statute is always used in
association with other words or phrases, and its meaning may, thus, be modified or
restricted by the latter. The particular words, clauses and phrases should not be studied
as detached and isolated expressions, but the whole and every part of the statute must
be considered in fixing the meaning of any of its parts and in order to produce a
harmonious whole. A statute must be so construed as to harmonize and give effect to
all its provisions whenever possible. In short, every meaning to be given to each word
or phrase must be ascertained from the context of the body of the statute since a word
or phrase in a statute is always used in association with other words or phrases and its
meaning may be modified or restricted by the latter. 84 (Emphasis supplied, citations
omitted)
Where a literal meaning would lead to absurdity, 85 contradiction, or injustice,86 or
otherwise defeat the clear purpose of the lawmakers, 87 the spirit and reason of the
statute may be examined to determine the true intention of the provision. 88
In this case, the phrase "any debtor who foresees the impossibility of meeting its debts
when they respectively fall due" in Rule 4, Section 1 of the Interim Rules need not refer
to a specific period or point in time when the debts mature. It may refer to the debtor
corporation's general realization that it will not be able to fulfill its obligations-a
realization that may come before default.
Construing the phrase "when they respectively fall due" to mean that the debtor must
already be in default defeats the clear purpose of the lawmakers. It unjustly limits
rehabilitation to corporations with matured obligations.
II
This Court is not a trier of facts. 89 The factual findings of the lower courts are accorded
great weight and respect.90This is especially so in corporate rehabilitation proceedings,
to which commercial courts are designated on account of their expertise and
specialized knowledge.91
The Court of Appeals affirmed the Regional Trial Court's findings that the Petition for
rehabilitation was sufficient and that the rehabilitation plan was reasonable. Petitioner
seeks to overturn these findings. It argues that the Petition was insufficient for its failure
to include maturity dates in the attached inventory; that the Regional Trial Court failed
to determine whether petitioner's opposition was manifestly unreasonable; and that the
rehabilitation plan was not feasible as it lacked materially significant financial
commitments.92
These are questions of fact. The resolution of these issues entails a review of the
sufficiency and weight of the evidence presented by the parties, including the inventory
attached to the Petition, as well as the other financial documents for the rehabilitation.
Pascual v. Burgos93reiterates that only questions of law should be raised in petitions
for certiorari under Rule 45:
The Rules of Court require that only questions of law should be raised in petitions filed
under Rule 45. This court is not a trier of facts. It will not entertain questions of fact as
the factual findings of the appellate courts are "final, binding[,] or conclusive on the
parties and upon this [c]ourt" when supported by substantial evidence. Factual findings
of the appellate courts will not be reviewed nor disturbed on appeal to this court.
However, these rules do admit exceptions. Over time, the exceptions to these rules
have expanded. At present, there are 10 recognized exceptions that were first listed
in Medina v. Mayor Asistio, Jr.:
(1) When the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion; (4) When the judgment is based on a
misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the
Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) The findings of
the Court of Appeals are contrary to those of the trial court; (8) When the findings of
fact are conclusions without citation of specific evidence on which they are based; (9)
When the facts set forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondents; and (10) The finding of fact of the Court of Appeals
is premised on the supposed absence of evidence and is contradicted by the evidence
on record.
These exceptions similarly apply in petitions for review filed before this court involving
civil, labor, tax, or criminal cases.
A question of fact requires this court to review the truthfulness or falsity of the
allegations of the parties. This review includes assessment of the "probative value of
the evidence presented." There is also a question of fact when the issue presented
before this court is the correctness of the lower courts' appreciation of the evidence
presented by the parties.94 (Citations omitted)
Absent any of the exceptions enumerated in Pascual, this Court will neither review nor
disturb the lower courts' findings of fact on appeal.
Petitioner contends that the Court of Appeals' findings are misapprehensions of the
facts of the case, and that these findings are conclusions without citations of their
specific factual bases. It claims that the Court of Appeals ignored respondent's failure
to attach the maturity dates 95 and merely relied on respondent's self-serving
assertions.96 It also argues that the Court of Appeals failed to refute petitioner's
observations on the defects of respondent's rehabilitation plan. 97
Petitioner fails to convince. The Court of Appeals had legal and factual bases for
approving the Petition for rehabilitation.
The Interim Rules does not specify that courts must make a written declaration that a
creditor's opposition is manifestly unreasonable. The Regional Trial Court Orders gave
petitioner every opportunity to make its opposition and stance clear. In issuing the
December 21, 2007 Order and approving the rehabilitation plan, the Regional Trial
Court found the opposition unreasonable.
Rule 4, Section 5 of the Interim Rules outlines the requisites of a rehabilitation plan:
RULE4
Debtor-Initiated Rehabilitation
....
SECTION 5. Rehabilitation Plan - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the execution
of the rehabilitation plan, which may include conversion of the debts or any portion
thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the
controlling interest; (e) a liquidation analysis that estimates the proportion of the claims
that the creditors and shareholders would receive if the debtor's properties were
liquidated; and (f) such other relevant information to enable a reasonable investor to
make an informed decision on the feasibility of the rehabilitation plan.
The Regional Trial Court, as affirmed by the Court of Appeals, deemed the Petition for
rehabilitation sufficient. In its June 27, 2007 Order, it found that all the documents
required under Rule 4, Section 2 of the Interim Rules were attached to the Petition. 98
The Court of Appeals did not disregard the maturity dates. The Petition annexed a table
of accounts receivable showing obligations that had already
matured.1âwphi1 Respondent likewise admitted in the Petition99 that it could not
comply with its obligations to petitioner.
Petitioner argues that the Regional Trial Court failed to rule on its Opposition and
declare it manifestly unreasonable. It claims that this failure renders respondent's
Petition for rehabilitation insufficient. This argument lacks credence.
Both the Court of Appeals and the Regional Trial Court found that the Rehabilitation
Receiver carefully considered the feasibility of the rehabilitation plan, and that no
serious objection and counter proposal were presented by petitioner.100
Philippine Bank of Communications illustrates what may be deemed as insufficient
financial commitments:
The commitment to add ₱10,000,000.00 working capital appeared to be doubtful
considering that the insurance claim from which said working capital would be sourced
had already been written off by Basic Polyprinters's affiliate, Wonder Book
Corporation. A claim that has been written off is considered a bad debt or a worthless
asset, and cannot be deemed a material financial commitment for purposes of
rehabilitation . . .
We also declared in Wonder Book Corporation v. Philippine Bank of Communications
(Wonder Book) that the conversion of all deposits for future subscriptions to common
stock and the treatment of all payables to officers and stockholders as trade payables
was hardly constituting material financial commitments. Such "conversion" of cash
advances to trade payables was, in fact, a mere re-classification of the liability entry
and had no effect on the shareholders' deficit. . . .
....
We observe, too, that Basic Polyprinters's proposal to enter into the dacion en pago to
create a source of ''fresh capital" was not feasible because the object thereof would not
be its own property but one belonging to its affiliate, TOL Realty and Development
Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations
(for the return of books and magazines from Basic Polyprinters's trade creditors) did
not partake of a voluntary undertaking because no actual financial commitments had
been made thereon.
....
Due to the rehabilitation plan being an indispensable requirement in the corporate
rehabilitation proceedings, Basic Polyprinters was expected to exert a conscious effort
in formulating the same, for such plan would spell the future not only for itself but also
for its creditors and the public in general. The contents and execution of the
rehabilitation plan could not be taken lightly.101 (Emphasis supplied, citations omitted)
Petitioner's contention hinges on the sufficiency of respondent's material financial
commitments, which becomes significant in determining its resolve, earnestness, and
good faith. 102
Respondent intends to source its funds from internal operations. That the funds are
internally generated does not render the funds insufficient. This arrangement is still a
material, voluntary, and significant financial commitment, in line with respondent's
rehabilitation plan.
Both the Court of Appeals and the Regional Trial Court found the Rehabilitation
Receiver's assurance that the cashflow from respondent's committed sources to be
sufficient, thus:
From the foregoing, the undersigned deems the expected sources of cashflow to
support the proposed Rehabilitation Plan of the Petitioner as realistic. The funds
requirement to jumpstart the Rehabilitation Plan is minimal and easily obtained by the
Petitioner's management; while the income to be realized from the development of a
condominium project is also feasible. Finally, the present management of the Petitioner
appears to be capable of revitalizing and operating the Company and to generate the
expected cashflow to support its repayment program. 103
Based on his assessment, the Rehabilitation Receiver noted that the funds required to
finance the first year of the rehabilitation plan would be much less than that the amount
stated in the Petition. 104 Respondent put forth in detail its financial commitments.
Respondent, as a debtor corporation, may file for rehabilitation despite having defaulted
on its obligations to petitioner. As its Petition for rehabilitation was sufficient and its
rehabilitation plan was feasible, respondent's rehabilitation should proceed.
WHEREFORE, the Petition is DENIED. The June 13, 2008 Decision and August 20,
2008 Resolution of the Court of Appeals in CA-G.R. SP No. 102147 are AFFIRMED.
SO ORDERED.
G.R. No. 165675 September 30, 2005
SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE, Petitioners,
vs.
ASB DEVELOPMENT CORPORATION, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the June 29, 2004 Decision of the Court of
Appeals in CA-G.R. SP No. 79420 which reversed and set aside the Decision of the
Office of the President; and its October 18, 2004 Resolution denying reconsideration
thereof.
The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela
Sobrejuanite (Sobrejuanite) filed a Complaint1 for rescission of contract, refund of
payments and damages, against ASB Development Corporation (ASBDC) before the
Housing and Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a
condominium unit and a parking space in the BSA Twin Tower-B Condominum located
at Bank Drive, Ortigas Center, Mandaluyong City. They averred that despite full
payment and demands, ASBDC failed to deliver the property on or before December
1999 as agreed. They prayed for the rescission of the contract; refund of payments
amounting to P2,674,637.10; payment of moral and exemplary damages, attorney’s
fees, litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the
Securities and Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan
of ASB Group of Companies, which includes ASBDC, and the appointment of a
rehabilitation receiver. The HLURB arbiter however denied the motion and ordered the
continuation of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC should have delivered the
property to Sobrejuanite in December 1999; that the latter had fully paid their
obligations except the P50,000.00 which should be paid upon completion of the
construction; and that rescission of the contract with damages is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission
of the contracts to sell between the parties, and further ordering the respondent
[ASBDC] to pay the complainants [Sobrejuanite] the following:
a) all amortization payments by the complainants amounting to P2,674,637.10 plus
12% interest from the date of actual payment of each amortization;
b) moral damages amounting to P200,000.00;
c) exemplary damages amounting to P100,000.00;
d) attorney’s fees amounting to P100,000.00;
e) litigation expenses amounting to P50,000.00.
All other claims and all counter-claims are hereby dismissed.
IT IS SO ORDERED.2
The HLURB Board of Commissioners3 affirmed the ruling of the arbiter that the
approval of the rehabilitation plan and the appointment of a rehabilitation receiver by
the SEC did not have the effect of suspending the proceedings before the HLURB. The
board held that the HLURB could properly take cognizance of the case since whatever
monetary award that may be granted by it will be ultimately filed as a claim before the
rehabilitation receiver. The board also found that ASBDC failed to deliver the property
to Sobrejuanite within the prescribed period. The dispositive portion of the Decision
reads:
Wherefore the petition for review is denied and the decision of the office below is
affirmed. It shall be understood that all monetary awards shall still be filed as claims
before the rehabilitation receiver.4
ASBDC filed an appeal5 before the Office of the President which was dismissed6 for
lack of merit. Hence, ASBDC filed a petition7 under Section 1, Rule 43 of the Rules of
Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420.
On June 29, 2004, the Court of Appeals rendered its assailed Decision, 8 the dispositive
portion of which reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The impugned
decision dated June 27, 2003 of the Office of the President is hereby REVERSED AND
SET ASIDE. No pronouncement as to costs.
SO ORDERED.9
The Court of Appeals held that the approval by the SEC of the rehabilitation plan and
the appointment of the receiver caused the suspension of the HLURB proceedings.
The appellate court noted that Sobrejuanite’s complaint for rescission and damages is
a claim under the contemplation of Presidential Decree (PD) No. 902-A or the SEC
Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of Procedure on
Corporate Rehabilitation,because it sought to enforce a pecuniary demand. Therefore,
jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC was obliged to
deliver the property in December 1999 but its financial reverses warranted the
extension of the period.
Sobrejuanite’s motion for reconsideration was denied10 hence the instant petition which
raises the following issues:
1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY
ABUSED ITS DISCRETION IN RULING THAT THE SEC, NOT THE HLURB, HAS
JURISDICTION OVER PETITIONER’S COMPLAINT, IN CONTRAVENTION TO LAW
AND THE RULING OF THIS HONORABLE COURT IN THE ARRANZA CASE.
2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY
ABUSED ITS DISCRETION WHEN IT RULED THAT THE APPROVAL OF THE
CORPORATE REHABILITATION PLAN AND THE APPOINTMENT OF A RECEIVER
HAD THE EFFECT OF SUSPENDING THE PROCEEDING IN THE HLURB, AND
THAT THE MONETARY AWARD GIVEN BY THE HLURB COULD NOT [BE] FILED
IN THE SEC FOR PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH
LAW AND JURISPRUDENCE.
3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY
ABUSED ITS DISCRETION IN RULING THAT RESPONDENT "IS JUSTIFIED IN
EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND THE
FINANCIAL CONSTRAINTS IT EXPERIENCED," BEING CONTRARY TO LAW AND
IN EEFECT AN UNLAWFUL NOVATION OF THE AGREEMENT OF THE DATE OF
DELIVERY ENTERED INTO BY PETITIONERS AND RESPONDENT.11
The petition lacks merit.
Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal, which is the
subject of the action pending before the Commission … whenever necessary in order
to preserve the rights of the parties-litigants and/or protect the interest of the investing
public and creditors: … Provided, finally, That upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions
for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body
shall be suspended accordingly. [Emphasis added]
The purpose for the suspension of the proceedings is to prevent a creditor from
obtaining an advantage or preference over another and to protect and preserve the
rights of party litigants as well as the interest of the investing public or creditors.12 Such
suspension is intended to give enough breathing space for the management committee
or rehabilitation receiver to make the business viable again, without having to divert
attention and resources to litigations in various fora. 13 The suspension would enable
the management committee or rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extra-judicial interference that might unduly hinder or
prevent the "rescue" of the debtor company. To allow such other action to continue
would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the
corporation instead of being directed toward its restructuring and rehabilitation. 14
Thus, in order to resolve whether the proceedings before the HLURB should be
suspended, it is necessary to determine whether the complaint for rescission of contract
with damages is a claim within the contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals,15 we construed claim to
refer only to debts or demands pecuniary in nature. Thus:
[T]he word ‘claim’ as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a
pecuniary nature. It means "the assertion of a right to have money paid. It is used in
special proceedings like those before administrative court, on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over
the defendant who owes a claim.
As used in statutes requiring the presentation of claims against a decedent’s estate,
"claim" is generally construed to mean debts or demands of a pecuniary nature which
could have been enforced against the deceased in his lifetime and could have been
reduced to simple money judgments; and among these are those founded upon
contract.
In Arranza v. B.F. Homes, Inc.,16 claim is defined as referring to actions involving
monetary considerations.
Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes,
Inc. were promulgated prior to the effectivity of the Interim Rules of Procedure on
Corporate Rehabilitation on December 15, 2000. The interim rules define a claim as
referring to all claims or demands, of whatever nature or character against a debtor or
its property, whether for money or otherwise. The definition is all-encompassing as it
refers to all actions whether for money or otherwise. There are no distinctions or
exemptions.
Incidentally, although the petition for rehabilitation with prayer for suspension of actions
and proceedings was filed before the SEC on May 2, 2000, 17 or prior to the effectivity
of the interim rules, the same would still apply pursuant to Section 1, Rule 1 thereof
which provides:
Section 1. Scope – These Rules shall apply to petitions for rehabilitation filed by
corporations, partnerships, and associations pursuant to Presidential Decree No. 902-
A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined under the Interim
Rules of Procedure on Corporate Rehabilitation. Even under our rulings in Finasia
Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes,
Inc., the complaint for rescission with damages would fall under the category
of claimconsidering that it is for pecuniary considerations.
In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of
P2,674,637.10 representing their total payments to ASBDC; P200,000.00 as moral
damages; P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees;
P50,000.00 as litigation expenses; P1,500.00 per hearing as appearance fees; and
costs of the suit.
In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus
12% interest from the date of actual payment of each amortization, representing the
refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral
damages; P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees; and
P50,000.00 as litigation expenses.
As such, the HLURB arbiter should have suspended the proceedings upon the approval
by the SEC of the ASB Group of Companies’ rehabilitation plan and the appointment
of its rehabilitation receiver. By the suspension of the proceedings, the receiver is
allowed to fully devote his time and efforts to the rehabilitation and restructuring of the
distressed corporation.
It is well to note that even the execution of final judgments may be held in abeyance
when a corporation is under rehabilitation.18 Hence, there is more reason in the instant
case for the HLURB arbiter to order the suspension of the proceedings as the motion
to suspend was filed soon after the institution of the complaint. By allowing the
proceedings to proceed, the HLURB arbiter unwittingly gave undue preference to
Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the
vice sought to be prevented by Section 6(c) of PD 902-A. Thus:
As between creditors, the key phrase is "equality is equity." When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors should stand on
equal footing. Not anyone of them should be given any preference by paying one or
some of them ahead of the others. This is precisely the reason for the suspension of all
pending claims against the corporation under receivership. Instead of creditors vexing
the courts with suits against the distressed firm, they are directed to file their claims
with the receiver who is a duly appointed officer of the SEC. 19
Petitioners’ reliance on Arranza v. B.F. Homes, Inc.20 is misplaced. In that case, we
held that the HLURB retained its jurisdiction despite the rehabilitation proceedings
since the claim filed by the homeowners did not involve pecuniary considerations. The
claim therein was for specific performance to enforce the homeowners’ rights as
regards right of way, open spaces, road and perimeter wall repairs, and security.
However, it can also be deduced therefrom that if the claim was for monetary awards,
the proceedings before the HLURB should be suspended during the rehabilitation.
Thus:
No violation of the SEC order suspending payments to creditors would result as far as G.R. No. 163156 December 10, 2008
petitioners’ complaint before the HLURB is concerned. To reiterate, what petitioners
seek to enforce are respondent’s obligations as a subdivision developer. Such claims NEGROS NAVIGATION CO., INC., petitioner,
are basically not pecuniary in nature although it could incidentally involve monetary vs.
considerations. All that petitioners’ claims entail is the exercise of proper subdivision COURT OF APPEALS, SPECIAL TWELFTH DIVISION AND TSUNEISHI HEAVY
management on the part of the SEC-appointed Board of Receivers towards the end INDUSTRIES (CEBU), INC.,respondents.
that homeowners shall enjoy the ideal community living that respondent portrayed they
would have when they bought real estate from it.
x---------------------------------------------------x
Neither may petitioners be considered as having "claims" against respondent within the
context of the following proviso of Section 6 (c) of P.D. No. 902-A, …to warrant G.R. No. 166845 December 10, 2008
suspension of the HLURB proceedings.
TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., petitioner,
.… vs.
NEGROS NAVIGATION CO., INC., SULFICIO O. TAGUD, JR., AND THE
REHABILITATION RECEIVER FOR NEGROS NAVIGATION CO., INC., respondents.
In this case, under the complaint for specific performance before the HLURB,
petitioners do not aim to enforce a pecuniary demand. Their claim for reimbursement
should be viewed in the light of respondent’s alleged failure to observe its statutory and DECISION
contractual obligations to provide petitioners a "decent human settlement" and "ample
opportunities for improving their quality of life." The HLURB, not the SEC, is equipped NACHURA, J.:
with the expertise to deal with that matter. 21
Before us are two consolidated cases, docketed as G.R. No. 163156 and G.R. No.
Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was 166845, which were filed by petitioners Negros Navigation Co., Inc. (NNC) and
obliged to deliver the property to Sobrejuanite on or before December 1999. Tsuneishi Heavy Industries (Cebu), Inc. (THI), respectively. The first is a petition
Nonetheless, the same was deemed extended due to the financial reverses for certiorari and prohibition assailing the April 29, 2004 Resolution1 of the Court of
experienced by the company. Section 7 of the Contract to Sell allows the developer to Appeals (CA) in CA-G.R. SP No. 83526. The second is a petition for review
extend the period of delivery on account of causes beyond its control, such as financial on certiorari, contesting the October 6, 2004 Decision2and January 24, 2005
reverses. Resolution3 of the CA in the same case.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals The Facts
dated June 29, 2004 in CA-G.R. SP No. 79420 and its Resolution dated October 18,
2004, are AFFIRMED.
The undisputed facts are as follows:

SO ORDERED. NNC is a shipping company that is primarily engaged in the business of transporting
through shipping vessels, passengers and cargoes at various ports of call in the
country.4 THI, on the other hand, is engaged in the business of shipbuilding and
repair.5 NNC engaged the services of THI for the repair of its vessels.

On February 9, 2004, THI filed a case for sum of money and damages with prayer for
issuance of writ of attachment against NNC before the Regional Trial Court of Cebu
(Cebu RTC), docketed as Civil Case No. CEB-29899 entitled "Tsuneishi Heavy
Industries (Cebu), Inc. v. Negros Navigation Co., Inc." The action is based on the
unpaid services for the repair of NNC’s vessels, otherwise known as repairman’s lien.

On March 5, 2004, the Cebu RTC issued an Order6 granting the issuance of a writ of
preliminary attachment against the properties of NNC. 7 It reasoned that based on the
affidavit in support of the application for the writ, NNC committed fraud in contracting
the debt or in incurring the obligation upon which the action was brought, thus, justifying
the issuance of the writ8 as mandated by Section 1(d) of Rule 57. It added that the
repairman’s lien of THI constituted a superior maritime lien that is enforceable by suit
in rem, as decreed by Presidential Decree No. 1521 (PD 1521). 9
On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff Rogelio T.
Pinar levied on one of the vessels of NNC, the M/V St. Peter the Apostle.10
On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with Prayer for
Suspension of Payments11 with the RTC of Manila (Manila RTC), Branch 46, which was
docketed as Special Proceeding No. 0409532. The Manila RTC granted the NNC’s
petition and issued a Stay Order12 on April 1, 2004. The said Order reads:
Petitioner Negros Navigation Co., Inc. filed a Petition alleging that it is a
domestic corporation with principal place of business at Pier 2, North Harbor,
Tondo, Manila; that since its incorporation, it had been very viable and
financially profitable; that because of the Asian Currency Crisis and the
devaluation of the Peso, it found itself in difficulty in paying its obligations with
creditors; that as a consequence, petitioner foresees its inability to meet its
obligations as they fall due; that since the obligations would not be met,
complications and problems will arise that will impair and affect the operation
of the corporation and its effort to rehabilitate its business; that one of its
creditors, Tsuneishi Heavy Industries, Inc., already attached one shipping
vessel of the corporation; and other creditors are threatening to sue; but
despite the foregoing, petitioner still foresee the prospect of paying its debts if
only given a "breathing spell." Hence, it is presenting a Rehabilitation Plan for
approval of its creditors as well as this Court.
Finding the Petition, together with its annexes, sufficient in form and
substance, the Court hereby:
1. Appoints Mr. Sulficio O. Tagud, Jr. as Rehabilitation Receiver with
a bond in the amount of PhP150,000.00;
2. Stays the enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or
otherwise, against the petitioner, its guarantors and sureties not
solidarily liable with the debtor;
3. Prohibits petitioner from selling, encumbering, transferring, or
disposing in any manner any of its properties, except in the ordinary
course of business;
4. Prohibits petitioner from making any payment of its liabilities
outstanding as of the date of filing of the petition;
5. Prohibits the debtor’s suppliers of goods or services from
withholding supply of goods and services in the ordinary course of
business for as long as the debtor makes payments for the services
and goods supplied after the issuance of the stay order;
6. Directs the payment in full of all administrative expenses incurred
after the issuance of the stay order;
7. Fixes the initial hearing of the petition on May 7, 2004 at 8:30 A.M.;
8. Directs petitioner to publish this Order in a newspaper of general
circulation throughout the Philippines once a week for two (2)
consecutive weeks;
9. Directs all creditors and all interested parties (including the
Securities and Exchange Commission) to file and serve with the
court and on the petitioner a verified comment on or opposition to the
petition, with supporting affidavits and documents, not later than ten
(10) days before the date of the initial hearing and putting them on
notice that their failure to do so will bar them from participating in the
proceedings; and
10. Directing the creditors and interested parties to secure from the
court copies of the petition and its annexes to enable them to file their
comment on or opposition to the petition and to prepare for the initial
hearing of the petition.
The Rehabilitation Receiver, Mr. Sulficio O. Tagud, Jr., is requested to submit
his oath of office within ten (10) days from receipt of this Order.
IT IS SO ORDERED.13
Upon the issuance of the stay order by the Manila RTC, NNC filed a Manifestation and
Motion to Suspend Proceedings and to Lift Preliminary Attachment with the Cebu
RTC.14
On April 5, 2004, THI filed an Amended Complaint15 in the Cebu RTC. In the amended
complaint, THI impleaded the following vessels of NNC as co-defendants in the suit:
M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora (Nuestra Señora)
De Fatima, M/V St. Peter the Apostle, M/V Santa Ana and M/V San Paolo. 16 THI prayed
for the following in the amended complaint:
WHEREFORE, it is respectfully prayed that:
1. An ex-parte writ of preliminary attachment/arrest order be issued directing
the sheriff to attach defendant’s properties not exempt from execution as
security for the satisfaction of the judgment in this action, and/or arrest the
defendant vessels, upon approval by the Court of an appropriate
attachment/arrest bond in accordance with the Rules of Court.
2. It is further respectfully prayed that after trial, judgment be rendered in favor
of the plaintiff and against the defendant, Negros Navigation ordering the latter
 to pay the amount of P104,464,000.00 plus interest and penalties, and in WHEREFORE, in view of the foregoing, the sheriff, or other proper officers of
satisfaction thereof and/or to ensure the same: this court and such other person(s) as they may deputize, is/are hereby
directed to arrest and detain the following vessels: M/V San Sebastian, M/S
a. In the in personam action, attaching the assets of defendant Princess of Negros, M/V Nossa Senhora de Fatima (Nuestra Senora de
Negros Navigation, including the vessel, M/V St. Joseph; and Fatima), M/V St. Peter the Apostle, M/V Sta. Ana and M/V San Paolo. The
Philippine Ports Authority, the Philippine Coast Guard, the Maritime Industry
Authority (MARINA), the Philippine National Police, the National Bureau of
b. In the in rem action, an order/warrant of arrest of the Vessels Investigation and other law enforcement agencies and all other government
based on plaintiff’s lien which arose from repairs and dry docking agencies and instrumentalities are hereby ordered to assist. Assistance shall
furnished by plaintiff to the following: include but not be limited to preventing the vessel from sailing or trading
except as this admiralty court shall direct. Keep the vessels in custody until
further order of this court, sitting as an admiralty court.
a) San Sebastian - P2,212,925.00
IT IS SO ORDERED.
b) Princess of Negros - 21,389,575.00
On April 12, 2004, NNC’s Rehabilitation Receiver filed with the Manila RTC a
c) Nuestra Sra. De Fatima - 3,743,250.00 Motion20 for the clarification of the stay order. It sought to confirm whether the claim
sought to be enforced by THI against the vessels of NNC is covered by the stay order.
d) St. Peter the Apostle - 43,483,000.00 On the same date, the Manila RTC issued an Order21 addressing the said motion. The
pertinent portion of the Order reads:
e) Sta. Ana - 264,000.00
The Interim Rules of Procedure on Corporate Rehabilitation does not
distinguish the kind of claims covered, whether in rem or in personam, due or
f) San Paolo - 33,371,250.00
not due. Hence, when the law does not distinguish, courts ought not to
distinguish. So the stay order applies to all CLAIMS.
TOTAL P104,464,000.00
SO ORDERED.22
be issued ex-parte and, after hearing, judgment be rendered ordering
the sale at public action of the Vessels, including all their On April 13, 2004, NNC filed a Motion to Suspend Proceedings and to Lift the Writ of
accessories, equipments, riggings and appurtenances, and, under Attachment and Arrest Orders23 before the Cebu RTC by virtue of the April 12, 2004
the manner provided for by law. Order of the Manila RTC. However, on April 29, 2004, the CA issued the
Resolution24 assailed in what is before this Court as G.R. No. 163156, wherein the
appellate court temporarily restrained the implementation of the Orders of the Manila
3. Attorney’s fees in an amount not less than P2,000,000.00 plus refund of
RTC dated April 1, 2004 and April 12, 2004. The pertinent portion of the assailed
docket fees, bond premiums and litigation expenses of no less
Resolution reads:
than P2,000,000.00.

To preserve the status quo and so as not to render ineffectual and nugatory
4. Costs of suit.
the judgment that will be rendered in this petition, a temporary restraining
order valid for sixty (60) days is issued enjoining respondents and all persons
Plaintiff prays for such other reliefs, cumulative and/or alternative, as this acting for them and on their behalf or third persons from enforcing or
Honorable Court may deem just and equitable under the premises.17 implementing the Orders dated April 1, 2004 and April 12, 2004 of the public
respondent.
On April 6, 2004, the Cebu RTC issued two (2) Orders. The first was an
Order18 admitting the amended complaint as a matter of right since NNC had not yet SO ORDERED.25
filed a responsive pleading when the same was filed. The second was an Order 19 for
the arrest of the vessels of NNC in the in rem aspect of the case. The fallo of the Order
From this CA Resolution, NNC sought recourse before us. On May 4, 2004, this Court
reads:
in G.R. No. 163156 issued a Temporary Restraining Order,26 the pertinent portion of
which reads:
 NOW, THEREFORE, YOU, RESPONDENTS are REQUIRED to file comment
on the petition within ten (10) days from notice, and RESTRAINED from
implementing the Court of Appeals resolution dated 29 April 2004, which
issued a temporary restraining order in CA-GR SP No. 83526 entitled
"Tsuneishi Heavy Industries (CEBU), Inc. vs. Hon. Artemio S. Tipon, Presiding
Judge, Regional Trial Court, Manila, Br. 46, Negros Navigation Co., Inc. and
Sulficio O. Tagud, Jr." enjoining the implementation of the Orders dated 1 April
2004 and 12 April 2004 of the Regional Trial Court of Manila, Br. 46 in SP
Proc. No. 04-109532, effective immediately and continuing until further orders
from this Court, and YOU, PETITIONER, are ordered to POST a BOND in the
amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) in cash or
surety issued by a reputable bonding company of indubitable solvency with
terms and conditions acceptable to this Court within five (5) days from notice
hereof, otherwise this temporary restraining order shall be rendered of no
force and effect.
On October 6, 2004, the CA issued the Decision27 assailed in what is now G.R. No.
166845, denying the petition of THI that sought to annul and enjoin the enforcement
and implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12,
2004. The fallo of the Decision reads:
WHEREFORE, in view of the foregoing, the instant petition is DENIED DUE
COURSE and is DISMISSED for lack of merit.
SO ORDERED.28
THI filed a motion for reconsideration. The same was denied in a Resolution 29 dated
January 24, 2005. Hence, this petition in G.R. No. 166845.
The Issues
NNC, in G.R. No. 163156, presented the sole issue of whether the CA committed grave
abuse of discretion amounting to lack or excess of jurisdiction in issuing the Resolution
dated April 29, 2004 embodying the temporary restraining order which enjoined the
implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12,
2004.30
On the other hand, THI, in G.R. No. 166845, assigned the following errors in the
decision and resolution of the CA:
A. The CA Decision erred in ruling that neither THI’s enforcement/the efficacy
of its maritime liens against the Vessels nor the Admiralty Court’s jurisdiction
over those liens is impaired by the Stay Orders issued by the Manila RTC. 31
B. The CA Decision, it is respectfully submitted, gravely erred in ruling that
THI’s maritime liens are covered by, and are subject to the Manila RTC’s
jurisdiction in, [NNC’s] rehabilitation proceedings. 32
The Ruling of the Court
In G.R. No. 163156
The issue presented by NNC in G.R. No. 163156 was rendered moot and academic by
the promulgation of the CA Decision and Resolution dated October 6, 2004 and
January 24, 2005, respectively. We find it unnecessary to discuss it extensively
because the arguments presented by NNC and THI in support of their respective
positions are, ultimately, the very same issues we now resolve in G.R. No. 166845.
In G.R. No. 166845
On the first issue, THI maintains that its maritime liens against the vessels of NNC were
impaired by the issuance of the stay order. THI argues that the issuance of the stay
order by the Manila RTC, acting as rehabilitation court, was erroneous considering that
maritime liens cannot be enforced, divested, and otherwise affected or dealt with except
by an admiralty court in an admiralty proceeding in rem. THI cited various foreign
jurisprudence to the effect that maritime liens are enforceable only by a suit in rem. 33 It
further averred that the mere suspension of the in rem proceedings in the admiralty
case prejudiced its substantive rights under Presidential Decree (PD) 1521. 34
The argument of THI is misplaced. There is no conflict as to which law should apply to
the case at bench. THI wishes to impress this Court that its claim for repairman’s lien
is a maritime lien and, accordingly, may be enforced only in a proceeding in rem. The
Court agrees that PD 1521 is the governing law concerning its maritime lien for the
services it rendered to NNC. However, when NNC filed a petition for corporate
rehabilitation and suspension of payments, and the Manila RTC found that the petition
was sufficient in form and in substance and appointed the rehabilitation receiver, the
admiralty proceeding was appropriately suspended in accordance with Section 6 of the
Interim Rules on Corporate Rehabilitation.35
Rehabilitation contemplates continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and
solvency.36 The purpose of rehabilitation proceedings is precisely to enable the
company to gain a new lease on life and thereby allow creditors to be paid their claims
from its earnings. The rehabilitation of a financially distressed corporation benefits its
employees, creditors, stockholders and, in a larger sense, the general public. 37
The governing law concerning rehabilitation and suspension of actions for claims
against corporations is PD 902-A, as amended. Republic Act No. 8799 (RA 8799),
otherwise known as The Securities Regulation Code, amended Section 5 of PD 902-
A, thereby transferring to the Regional Trial Courts the jurisdiction of the Securities and
Exchange Commission (SEC) over cases, among others, involving petitions of
corporations, partnerships or associations to be declared in the state of suspension of
payments where the corporation, partnership or association possesses property to
cover all its debts but foresees the impossibility of meeting them when they respectively
fall due, or where the corporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a rehabilitation receiver or a
management committee.
The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation on
December 15, 2000, and these rules apply to petitions for rehabilitation filed by
corporations, partnerships, and associations pursuant to PD 902-A.
PD 902-A38 mandates that upon appointment of a management committee,
rehabilitation receiver, board or body, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended. PD 902-A does not make any
distinction as to what claims are covered by the suspension of actions for claims against
corporations under rehabilitation. No exception is made therein in favor of maritime
claims. Thus, since the law does not make any exemptions or distinctions, neither
should we. Ubi lex non distinguit nec nos distinguere debemos.
The justification for the suspension of actions or claims, without distinction, pending
rehabilitation proceedings is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the "rescue" of the debtor company.
To allow such other actions to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation instead of being directed
toward its restructuring and rehabilitation.39
It is undisputed that THI holds a preferred maritime lien over NNC’s assets by virtue of
THI’s unpaid services. The issuance of the stay order by the rehabilitation court does
not impair or in any way diminish THI’s preferred status as a creditor of NNC. The
enforcement of its claim through court action was merely suspended to give way to the
speedy and effective rehabilitation of the distressed shipping company. Upon
termination of the rehabilitation proceedings or in the event of the bankruptcy and
consequent dissolution of the company, THI can still enforce its preferred claim upon
NNC.
PD 902-A was designed not only to salvage an ailing corporation but also to protect the
interest of investors, creditors and the general public. Section 6 (d) of PD 902-A
provides: "the management committee or rehabilitation receiver, board or body shall
have the power to take custody of, and control over, all the existing assets and property
of such entities under management; to evaluate the existing assets and liabilities,
earnings and operations of such corporations, partnerships or other associations; to
determine the best way to salvage and protect the interest of the investors and
creditors; to study, review and evaluate the feasibility of continuing operations and
restructure and rehabilitate such entities if determined to be feasible by the [court]. It
shall report and be responsible to the [court] until dissolved by order of the [court]:
Provided, however, That the [court] may, on the basis of the findings and
recommendation of the management committee, or rehabilitation receiver, board or
body, or on its own findings, determine that the continuance in business of such
corporation or entity would not be feasible or profitable nor work to the best interest of
the stockholders, parties-litigants, creditors, or the general public, order the dissolution
of such corporation entity and its remaining assets liquidated accordingly. The
management committee or rehabilitation receiver, board or body may overrule or
revoke the actions of the previous management and board of directors of the entity or
entities under management notwithstanding any provision of law, articles of
incorporation or by-laws to the contrary."
When a distressed company is placed under rehabilitation, the appointment of a
management committee follows to avoid collusion between the previous management
and creditors it might favor, to the prejudice of the other creditors. The stay order is
effective on all creditors of the corporation without distinction, whether secured or
unsecured. All assets of a corporation under rehabilitation receivership are held in trust
for the equal benefit of all creditors to preclude one from obtaining an advantage or
preference over another by the expediency of attachment, execution or otherwise. As
between the creditors, the key phrase is equality in equity. Once the corporation
threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand
on equal footing. Not any one of them should be paid ahead of the others. This is
precisely the reason for suspending all pending claims against the corporation under
receivership.40
Rizal Commercial Banking Corporation v. Intermediate Appellate Court,41 promulgated
by the Court en banc before the effectivity of the Interim Rules on Corporate
Rehabilitation, is still valid case law up to the present. It enumerates the guidelines in
the treatment of claims involving corporations undergoing rehabilitation, viz.:
1. All claims against corporations, partnerships, or associations that are
pending before any court, tribunal, or board, without distinction as to whether
or not a creditor is secured or unsecured, shall be suspended effective upon
the appointment of a management committee, rehabilitation receiver, board,
or body in accordance with the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but
enforcement of such preference is equally suspended upon the appointment
of a management committee, rehabilitation receiver, board, or body. In the
event that the assets of the corporation, partnership, or association are finally
liquidated, however, secured and preferred credits under the applicable
provisions of the Civil Code will definitely have preference over unsecured
ones.42
On the second issue, THI argues that the Manila RTC, in granting the stay order,
divested the Cebu RTC, which is acting as an admiralty court, of its jurisdiction over the
maritime case of THI. It insists that its maritime liens over the vessels of NNC must be
upheld, notwithstanding NNC’s rehabilitation proceedings. It stresses that in in
remproceedings to enforce maritime liens, the vessels alone may be impleaded as
defendants. The vessels themselves answer for the liens, and lienholders like THI have
the substantive statutory right under PD 1521 to insist on the vessels’ responsibility
because an action in rem is a proceeding against the ship itself. Furthermore, it
emphasizes that a maritime lien is not affected by bankruptcy or reorganization, citing
Gilmore and Black as reference.43
True enough, a maritime lien is not affected by bankruptcy or reorganization. However,
in the instant case, we are not dealing with bankruptcy or reorganization; rather, we are
confronted with NNC’s rehabilitation. If we follow the argument of THI and allow the
continued enforcement of its claims against NNC, we would, in effect, violate provisions
of PD 902-A. To reiterate, the rationale behind PD 902-A is to effect a feasible and G.R. No. 169725 April 30, 2010
viable rehabilitation of an ailing corporation.
RICARDO V. CASTILLO, Petitioner,
There is no conflict between PD 1521 and PD 902-A. The Manila RTC acting as a vs.
rehabilitation court merely suspended the proceedings in the admiralty case in the Cebu UNIWIDE WAREHOUSE CLUB, INC. and/or JIMMY GOW, Respondents.
RTC. It did not divest the Cebu RTC of its jurisdiction over the maritime claims of THI
against NNC. The preferred maritime lien of THI can still be enforced upon the DECISION
termination of the rehabilitation proceedings, or if it such be unsuccessful, upon the
dissolution of the corporation.
PERALTA, J.:
WHEREFORE, in view of the foregoing disquisitions, judgment is rendered as follows:
This is a Petition for Review1 under Rule 45 of the Rules of Court assailing the April 22,
2005 Decision2 and the September 9, 2005 Resolution3 of the Court of Appeals in CA-
(1) In G.R. No. 163156, the petition is DISMISSED for being moot and G.R. SP No. 83226. The challenged decision reversed and set aside the resolution of
academic; and the National Labor Relations Commission (NLRC) denying herein respondents’ motion
to suspend proceedings in an illegal dismissal case filed by herein petitioner, whereas
(2) In G.R. No. 166845, the petition is DENIED for lack of merit. the subject resolution denied reconsideration.

SO ORDERED. The case stems from a Complaint4 for illegal dismissal filed on August 26, 2002 by
herein petitioner Ricardo V. Castillo against herein respondents Uniwide Warehouse
Club, Inc. and its president, Jimmy N. Gow. The complaint, docketed as NLRC NCR
Case No. 08-06770-2002, contained a prayer for the payment of worked Saturdays for
the year 2001; holiday pay; separation pay; actual, moral and exemplary damages; and
attorney’s fees.

However, almost two months from the filing of the Complaint, or on October 18, 2002,
respondents submitted a Motion to Suspend Proceedings 5 on the ground that in June
1999, the Uniwide Group of Companies had petitioned the Securities and Exchange
Commission (SEC) for suspension of payments and for approval of its proposed
rehabilitation plan. It appears that on June 29, 1999, the SEC had ruled favorably on
the petition and ordered that all claims, actions and proceedings against herein
respondents pending before any court, tribunal, board, office, body or commission be
suspended, and that following the appointment of an interim receiver, the suspension
order had been extended to until February 7, 2000. On April 11, 2000, the SEC declared
the Uniwide Group of Companies to be in a state of suspension of payments and
approved its rehabilitation plan.

In an Order6 dated February 17, 2003, Labor Arbiter Lilia S. Savari denied the Motion
to Suspend Proceedings in the present case. Respondents lodged an appeal with the
NLRC which, on September 30, 2003, sustained the Labor Arbiter and held that as
early as February 7, 2000 the suspension order of the SEC should be considered lifted
already and that with the approval of the rehabilitation plan, the suspension of the
proceedings in the instant labor case would no longer be necessary. 7

Respondents moved for reconsideration, but they were denied relief in the Resolution
dated December 30, 2003 of the NLRC.1avvphi1

Respondents elevated the matter to the Court of Appeals in a petition

for certiorari under Rule 65, in which they raised the issue of whether the Labor Arbiter
and the NLRC committed grave error in not suspending the proceedings of this labor
case pursuant to the SEC’s April 11, 2000 Resolution placing the Uniwide Group of
Companies under rehabilitation.8 The Court of Appeals found merit in the petition and,
accordingly, in its April 22, 2005 Decision, it reversed the September 30, 2003 and
December 30, 2003 Resolutions of the NLRC and ordered the suspension of the
proceedings in this case. The court disposed of the case as follows:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The
assailed Resolutions dated 30 September 2003 and 30 December 2003 of public
respondent NLRC are hereby REVERSED and NULLIFIED and new one entered
ordering the suspension of the proceedings before the Arbitration Branch of origin in
NLRC NCR Case No. 00-08-06770-2002 entitled Ricardo V. Castillo, complainant,
versus Uniwide Warehouse Club, Inc. and/or Jimmy N. Gow.
SO ORDERED.9
Meantime, on July 9, 2005, Labor Arbiter Savari issued a Decision10 on the illegal
dismissal complaint filed by petitioner declaring valid petitioner’s termination,
dismissing all other claims for lack of merit and ordering respondents to pay the amount
of ₱330,000.00 as separation pay. It appears that from this decision, both parties filed
their respective appeals with the NLRC.11
In his present recourse, petitioner ascribes error to the Court of Appeals in reversing
the ruling of the Labor Arbiter and the NLRC. He posits that the suspension of the
proceedings in the illegal dismissal case is not in order, because the viability of his
claim against respondents and the latter’s corresponding liability are yet to be
determined, especially in view of the fact that the SEC had approved respondents’
rehabilitation plan and that the company had been operating on its own according to
said plan. Petitioner believes that for this reason, the NLRC is bound to proceed with
the case to determine whether his dismissal was valid and, ultimately, to determine the
liability of respondents.12
To this, respondents counter that the Court of Appeals was correct in sustaining the
suspension of the proceedings in the illegal dismissal case as it is among those actions
for claims that are automatically suspended on the appointment of a management
committee or receiver according to Section 6 of Presidential Decree (P.D.) No. 902-A.
Respondents advance the notion that while said Section 6 expressly referred to
suspension of pending claims, the clear and unmistakable intention of the law is to bar
the filing of any such claims in order to maintain parity of status among the different
creditors of the distressed corporation at least while the rehabilitation efforts are
ongoing.
There is merit in respondents’ contention.
To begin with, corporate rehabilitation connotes the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its continued operation
is economically feasible and its creditors can recover by way of the present value of
payments projected in the rehabilitation plan, more if the corporation continues as a
going concern than if it is immediately liquidated.13 It contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to enable the
company to gain a new lease on life and allow its creditors to be paid their claims out
of its earnings.14
An essential function of corporate rehabilitation is the mechanism of suspension of all
actions and claims against the distressed corporation, which operates upon the due
appointment of a management committee or rehabilitation receiver. The governing law
concerning rehabilitation and suspension of actions for claims against corporations is
P.D. No. 902-A, as amended. Section 6(c) of the law mandates that, upon appointment
of a management committee, rehabilitation receiver, board, or body, all actions for
claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board, or body shall be suspended.15 It
materially provides:
Section 6 (c). x x x
x x x Provided, finally, that upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims
against corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body, shall be suspended accordingly.
In Finasia Investments and Finance Corporation v. Court of Appeals,16 the term "claim"
has been construed to refer to debts or demands of a pecuniary nature, or the assertion
to have money paid. It was referred to, in Arranza v. B.F. Homes, Inc.,17 as an action
involving monetary considerations and in Philippine Airlines v. Kurangking,18 the term
was identified as the right to payment, whether or not it is reduced to judgment,
liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, legal or equitable, and secured or unsecured.19Furthermore, the actions
that were suspended cover all claims against a distressed corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or
any other claims of a pecuniary nature.20 More importantly, the new rules on corporate
rehabilitation, as well as the interim rules, provide an all-encompassing definition of the
term and, thus, include all claims or demands of whatever nature or character against
a debtor or its property, whether for money or otherwise. 21 There is no doubt that
petitioner’s claim in this case, arising as it does from his alleged illegal dismissal, is a
claim covered by the suspension order issued by the SEC, as it is one for pecuniary
consideration.
Jurisprudence is settled that the suspension of proceedings referred to in the law
uniformly applies to "all actions for claims" filed against a corporation, partnership or
association under management or receivership, without distinction, except only those
expenses incurred in the ordinary course of business. 22 In the oft-cited case
of Rubberworld (Phils.) Inc. v. NLRC,23 the Court noted that aside from the given
exception, the law is clear and makes no distinction as to the claims that are suspended
once a management committee is created or a rehabilitation receiver is appointed.
Since the law makes no distinction or exemptions, neither should this Court. Ubi lex
non distinguit nec nos distinguere debemos.24 Philippine Airlines, Inc. v.
Zamora25 declares that the automatic suspension of an action for claims against a
corporation under a rehabilitation receiver or management committee embraces all
phases of the suit, that is, the entire proceedings of an action or suit and not just the He thus concludes that Anicia Banes was authorized to represent only the corporation,
payment of claims. excluding Jimmy Gow.31 The argument fails.

The reason behind the imperative nature of a suspension or stay order in relation to the
creditors’ claims cannot be downplayed, for indeed the indiscriminate suspension of
actions for claims intends to expedite the rehabilitation of the distressed corporation by
enabling the management committee or the rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extrajudicial interference that might
unduly hinder or prevent the rescue of the debtor company. To allow such other actions
to continue would only add to the burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in defending claims against
the corporation, instead of being directed toward its restructuring and rehabilitation.26
At this juncture, it must be conceded that the date when the claim arose, or when the
action was filed, has no bearing at all in deciding whether the given action or claim is
covered by the stay or suspension order. What matters is that as long as the corporation
is under a management committee or a rehabilitation receiver, all actions for claims
against it, whether for money or otherwise, must yield to the greater imperative of
corporate revival, excepting only, as already mentioned, claims for payment of
obligations incurred by the corporation in the ordinary course of business.27
The petitioners before the Court of Appeals, respondents herein, are the company,
Uniwide Warehouse Club, Inc., and its president, Jimmy Gow. The latter was impleaded
before the Court of Appeals only and simply because he was a co-respondent in the
illegal dismissal complaint filed by herein petitioner. It is to be noted that Jimmy Gow
has no interest in this case separate and distinct from that of the company, which, for
legal purposes was the direct employer of petitioner. Any award of reinstatement,
backwages, attorney’s fees and damages in favor of petitioner will be enforced against
the company as the real party-in-interest in the illegal dismissal case. Respondent
Jimmy Gow is clearly a mere nominal party to the case. Therefore, his failure to sign
the verification and certification against forum shopping does not constitute a valid and
sufficient ground for the Court of Appeals to deny the certiorari petition.32
WHEREFORE, premises considered, the Petition is DENIED. The April 22, 2005
Decision and the September 9, 2005 Resolution of the Court of Appeals in CA-G.R. SP
No. 83226 are AFFIRMED.
SO ORDERED.

It is, thus, not difficult to see why the subject action for illegal dismissal and damages
against respondent corporation ought to have been suspended at the first instance
respondents submitted before the Labor Arbiter their motion to suspend proceedings
in the illegal dismissal case. This, considering that at the time the labor case was filed
on August 26, 2002, respondent corporation was undergoing proceedings for
rehabilitation and was later on declared to be in a state of suspension of payments.

In fact, a Certification28 issued by the SEC and signed by its General Counsel, Vernette
G. Umali-Paco, states that as of August 17, 2006, the petition of Uniwide Sales, Inc. for
declaration of suspension of payments and rehabilitations was still pending with it, and
that the company was still under its rehabilitation proceedings. Hence, since petitioner’s
claim was one for wages accruing from the time of dismissal, as well as for benefits
and damages, the same should have been suspended pending the rehabilitation
proceedings. In other words, the Labor Arbiter should have abstained from resolving
the illegal dismissal case and, instead, directed petitioner to present his claim to the
rehabilitation receiver duly appointed by the SEC, 29 inasmuch as the stay or
suspension order was effective and it subsisted from issuance until the dismissal of the
petition for rehabilitation or the termination of the rehabilitation proceedings.30 The
Court of Appeals was thus correct in directing the suspension of the proceedings in
NLRC NCR Case No. 08-06770-2002.

We now turn to the next and final issue. Petitioner submits that the Court of Appeals
committed yet another error when it did not deny respondents’ certiorari petition when
in fact one of the petitioners therein, Jimmy Gow, did not submit a certification against
forum shopping. He points out that the verification and certification attached to
the certiorari petition filed with the Court of Appeals was executed by one Anicia Bañes,
who stated under oath that she was the human resource manager and duly authorized
representative of Uniwide Warehouse Club, Inc. and the latter’s president, Jimmy Gow.
G.R. No. 164856 January 20, 2009
JUANITO A. GARCIA and ALBERTO J. DUMAGO, Petitioners,
vs.
PHILIPPINE AIRLINES, INC., Respondent.
DECISION
CARPIO MORALES, J.:
Petitioners Juanito A. Garcia and Alberto J. Dumago assail the December 5, 2003
Decision and April 16, 2004 Resolution of the Court of Appeals 1 in CA-G.R. SP No.
69540 which granted the petition for certiorari of respondent, Philippine Airlines, Inc.
(PAL), and denied petitioners’ Motion for Reconsideration, respectively. The dispositive
portion of the assailed Decision reads:
WHEREFORE, premises considered and in view of the foregoing, the instant petition
is hereby GIVEN DUE COURSE. The assailed November 26, 2001 Resolution as well
as the January 28, 2002 Resolution of public respondent National Labor Relations
Commission [NLRC] is hereby ANNULLED and SET ASIDE for having been issued
with grave abuse of discretion amounting to lack or excess of jurisdiction.
Consequently, the Writ of Execution and the Notice of Garnishment issued by the Labor
Arbiter are hereby likewise ANNULLED and SET ASIDE.
SO ORDERED.2
The case stemmed from the administrative charge filed by PAL against its employees-
herein petitioners3 after they were allegedly caught in the act of sniffing shabu when a
team of company security personnel and law enforcers raided the PAL Technical
Center’s Toolroom Section on July 24, 1995.
After due notice, PAL dismissed petitioners on October 9, 1995 for transgressing the
PAL Code of Discipline,4prompting them to file a complaint for illegal dismissal and
damages which was, by Decision of January 11, 1999,5resolved by the Labor Arbiter in
their favor, thus ordering PAL to, inter alia, immediately comply with the reinstatement
aspect of the decision.
Prior to the promulgation of the Labor Arbiter’s decision, the Securities and Exchange
Commission (SEC) placed PAL (hereafter referred to as respondent), which was
suffering from severe financial losses, under an Interim Rehabilitation Receiver, who
was subsequently replaced by a Permanent Rehabilitation Receiver on June 7, 1999.
From the Labor Arbiter’s decision, respondent appealed to the NLRC which, by
Resolution of January 31, 2000, reversed said decision and dismissed petitioners’
complaint for lack of merit.6
Petitioners’ Motion for Reconsideration was denied by Resolution of April 28, 2000 and
Entry of Judgment was issued on July 13, 2000.7
Subsequently or on October 5, 2000, the Labor Arbiter issued a Writ of Execution (Writ)
respecting the reinstatement aspect of his January 11, 1999 Decision, and on October
25, 2000, he issued a Notice of Garnishment (Notice). Respondent thereupon moved
to quash the Writ and to lift the Notice while petitioners moved to release the garnished
amount.
In a related move, respondent filed an Urgent Petition for Injunction with the NLRC
which, by Resolutions of November 26, 2001 and January 28, 2002, affirmed the
validity of the Writ and the Notice issued by the Labor Arbiter but suspended and
referred the action to the Rehabilitation Receiver for appropriate action.
Respondent elevated the matter to the appellate court which issued the herein
challenged Decision and Resolution nullifying the NLRC Resolutions on two grounds,
essentially espousing that: (1) a subsequent finding of a valid dismissal removes the
basis for implementing the reinstatement aspect of a labor arbiter’s decision (the first
ground), and (2) the impossibility to comply with the reinstatement order due to
corporate rehabilitation provides a reasonable justification for the failure to exercise the
options under Article 223 of the Labor Code (the second ground).
By Decision of August 29, 2007, this Court PARTIALLY GRANTED the present petition
and effectively reinstated the NLRC Resolutions insofar as it suspended the
proceedings, viz:
Since petitioners’ claim against PAL is a money claim for their wages during the
pendency of PAL’s appeal to the NLRC, the same should have been suspended
pending the rehabilitation proceedings. The Labor Arbiter, the NLRC, as well as the
Court of Appeals should have abstained from resolving petitioners’ case for illegal
dismissal and should instead have directed them to lodge their claim before PAL’s
receiver.
However, to still require petitioners at this time to re-file their labor claim against PAL
under peculiar circumstances of the case– that their dismissal was eventually held valid
with only the matter of reinstatement pending appeal being the issue– this Court deems
it legally expedient to suspend the proceedings in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant
proceedings herein are SUSPENDED until further notice from this Court. Accordingly,
respondent Philippine Airlines, Inc. is hereby DIRECTED to quarterly update the Court
as to the status of its ongoing rehabilitation. No costs.
SO ORDERED.8 (Italics in the original; underscoring supplied)
By Manifestation and Compliance of October 30, 2007, respondent informed the Court
that the SEC, by Order of September 28, 2007, granted its request to exit from
rehabilitation proceedings.9
In view of the termination of the rehabilitation proceedings, the Court now proceeds to
resolve the remaining issuefor consideration, which is whether petitioners may collect
their wages during the period between the Labor Arbiter’s order of reinstatement
pending appeal and the NLRC decision overturning that of the Labor Arbiter, now that
respondent has exited from rehabilitation proceedings.
Amplification of the First Ground
The appellate court counted on as its first ground the view that a subsequent finding of
a valid dismissal removes the basis for implementing the reinstatement aspect of a
labor arbiter’s decision.
On this score, the Court’s attention is drawn to seemingly divergent decisions
concerning reinstatement pending appeal or, particularly, the option of payroll
reinstatement. On the one hand is the jurisprudential trend as expounded in a line of
cases including Air Philippines Corp. v. Zamora,10 while on the other is the recent case
of Genuino v. National Labor Relations Commission.11 At the core of the seeming
divergence is the application of paragraph 3 of Article 223 of the Labor Code which
reads:
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated
employee, insofar as the reinstatement aspect is concerned, shall immediately be
executory, pending appeal. The employee shall either be admitted back to work under
the same terms and conditions prevailing prior to his dismissal or separation or, at the
option of the employer, merely reinstated in the payroll. The posting of a bond by the
employer shall not stay the execution for reinstatement provided herein. (Emphasis and
underscoring supplied)
The view as maintained in a number of cases is that:
x x x [E]ven if the order of reinstatement of the Labor Arbiter is reversed on
appeal, it is obligatory on the part of the employer to reinstate and pay the wages
of the dismissed employee during the period of appeal until reversal by the
higher court. On the other hand, if the employee has been reinstated during the appeal
period and such reinstatement order is reversed with finality, the employee is not
required to reimburse whatever salary he received for he is entitled to such, more so if
he actually rendered services during the period.12 (Emphasis in the original; italics and
underscoring supplied)
In other words, a dismissed employee whose case was favorably decided by the Labor
Arbiter is entitled to receive wages pending appeal upon reinstatement, which is
immediately executory. Unless there is a restraining order, it is ministerial upon the
Labor Arbiter to implement the order of reinstatement and it is mandatory on the
employer to comply therewith.13
The opposite view is articulated in Genuino which states:
If the decision of the labor arbiter is later reversed on appeal upon the finding that the
ground for dismissal is valid, then the employer has the right to require the
dismissed employee on payroll reinstatement to refund the salaries s/he
received while the case was pending appeal, or it can be deducted from the accrued
benefits that the dismissed employee was entitled to receive from his/her employer
under existing laws, collective bargaining agreement provisions, and company
practices. However, if the employee was reinstated to work during the pendency of the
appeal, then the employee is entitled to the compensation received for actual services
rendered without need of refund.
Considering that Genuino was not reinstated to work or placed on payroll reinstatement,
and her dismissal is based on a just cause, then she is not entitled to be paid the
salaries stated in item no. 3 of the fallo of the September 3, 1994 NLRC
Decision.14 (Emphasis, italics and underscoring supplied)
It has thus been advanced that there is no point in releasing the wages to petitioners
since their dismissal was found to be valid, and to do so would constitute unjust
enrichment.
Prior to Genuino, there had been no known similar case containing a dispositive portion
where the employee was required to refund the salaries received on payroll
reinstatement. In fact, in a catena of cases, 15 the Court did not order the refund of
salaries garnished or received by payroll-reinstated employees despite a subsequent
reversal of the reinstatement order.
The dearth of authority supporting Genuino is not difficult to fathom for it would
otherwise render inutile the rationale of reinstatement pending appeal.
x x x [T]he law itself has laid down a compassionate policy which, once more, vivifies
and enhances the provisions of the 1987 Constitution on labor and the working man.
xxxx
These duties and responsibilities of the State are imposed not so much to express
sympathy for the workingman as to forcefully and meaningfully underscore labor as a
primary social and economic force, which the Constitution also expressly affirms with
equal intensity. Labor is an indispensable partner for the nation's progress and stability.
xxxx
x x x In short, with respect to decisions reinstating employees, the law itself has
determined a sufficiently overwhelming reason for its execution pending appeal.
xxxx
x x x Then, by and pursuant to the same power (police power), the State may authorize
an immediate implementation, pending appeal, of a decision reinstating a dismissed or
separated employee since that saving act is designed to stop, although temporarily
since the appeal may be decided in favor of the appellant, a continuing threat or danger
to the survival or even the life of the dismissed or separated employee and his family. 16
The social justice principles of labor law outweigh or render inapplicable the civil law
doctrine of unjust enrichment espoused by Justice Presbitero Velasco, Jr. in his
Separate Opinion. The constitutional and statutory precepts portray the otherwise
"unjust" situation as a condition affording full protection to labor.
Even outside the theoretical trappings of the discussion and into the mundane realities
of human experience, the "refund doctrine" easily demonstrates how a favorable
decision by the Labor Arbiter could harm, more than help, a dismissed employee. The
employee, to make both ends meet, would necessarily have to use up the salaries
received during the pendency of the appeal, only to end up having to refund the sum in
case of a final unfavorable decision. It is mirage of a stop-gap leading the employee to
a risky cliff of insolvency.
Advisably, the sum is better left unspent. It becomes more logical and practical for the
employee to refuse payroll reinstatement and simply find work elsewhere in the interim,
if any is available. Notably, the option of payroll reinstatement belongs to the employer,
even if the employee is able and raring to return to work. Prior to Genuino, it is
unthinkable for one to refuse payroll reinstatement. In the face of the grim possibilities,
the rise of concerned employees declining payroll reinstatement is on the horizon.
Further, the Genuino ruling not only disregards the social justice principles behind the
rule, but also institutes a scheme unduly favorable to management. Under such
scheme, the salaries dispensed pendente lite merely serve as a bond posted in
installment by the employer. For in the event of a reversal of the Labor Arbiter’s decision
ordering reinstatement, the employer gets back the same amount without having to
spend ordinarily for bond premiums. This circumvents, if not directly contradicts, the
proscription that the "posting of a bond [even a cash bond] by the employer shall not
stay the execution for reinstatement."17
In playing down the stray posture in Genuino requiring the dismissed employee on
payroll reinstatement to refund the salaries in case a final decision upholds the validity
of the dismissal, the Court realigns the proper course of the prevailing doctrine on
reinstatement pending appeal vis-à-vis the effect of a reversal on appeal.
Respondent insists that with the reversal of the Labor Arbiter’s Decision, there is no
more basis to enforce the reinstatement aspect of the said decision. In his Separate
Opinion, Justice Presbitero Velasco, Jr. supports this argument and finds the prevailing
doctrine in Air Philippines and allied cases inapplicable because, unlike the present
case, the writ of execution therein was secured prior to the reversal of the Labor
Arbiter’s decision.
The proposition is tenuous. First, the matter is treated as a mere race against time. The
discussion stopped there without considering the cause of the delay. Second, it requires
the issuance of a writ of execution despite the immediately executory nature of the
reinstatement aspect of the decision. In Pioneer Texturing Corp. v. NLRC, 18which was
cited in Panuncillo v. CAP Philippines, Inc.,19 the Court observed:
x x x The provision of Article 223 is clear that an award [by the Labor Arbiter] for
reinstatement shall be immediately executory even pending appeal and the posting of
a bond by the employer shall not stay the execution for reinstatement. The legislative
intent is quite obvious, i.e., to make an award of reinstatement immediately enforceable,
even pending appeal. To require the application for and issuance of a writ of execution
as prerequisites for the execution of a reinstatement award would certainly betray and
run counter to the very object and intent of Article 223, i.e., the immediate execution of
a reinstatement order. The reason is simple. An application for a writ of execution and
its issuance could be delayed for numerous reasons. A mere continuance or
postponement of a scheduled hearing, for instance, or an inaction on the part of the
Labor Arbiter or the NLRC could easily delay the issuance of the writ thereby setting at
naught the strict mandate and noble purpose envisioned by Article 223. In other
words, if the requirements of Article 224 [including the issuance of a writ of
execution] were to govern, as we so declared in Maranaw, then the executory nature
of a reinstatement order or award contemplated by Article 223 will be unduly
circumscribed and rendered ineffectual. In enacting the law, the legislature is presumed
to have ordained a valid and sensible law, one which operates no further than may be
necessary to achieve its specific purpose. Statutes, as a rule, are to be construed in
the light of the purpose to be achieved and the evil sought to be remedied. x x x In
introducing a new rule on the reinstatement aspect of a labor decision under Republic
Act No. 6715, Congress should not be considered to be indulging in mere semantic
exercise. x x x20 (Italics in the original; emphasis and underscoring supplied)
The Court reaffirms the prevailing principle that even if the order of reinstatement of the
Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to
reinstate and pay the wages of the dismissed employee during the period of appeal
until reversal by the higher court.21 It settles the view that the Labor Arbiter's order of
reinstatement is immediately executory and the employer has to either re-admit them
to work under the same terms and conditions prevailing prior to their dismissal, or to
reinstate them in the payroll, and that failing to exercise the options in the alternative,
employer must pay the employee’s salaries. 22
Amplification of the Second Ground
The remaining issue, nonetheless, is resolved in the negative on the strength of the
second ground relied upon by the appellate court in the assailed issuances. The Court
sustains the appellate court’s finding that the peculiar predicament of a corporate
rehabilitation rendered it impossible for respondent to exercise its option under the
circumstances.
The spirit of the rule on reinstatement pending appeal animates the proceedings once
the Labor Arbiter issues the decision containing an order of reinstatement. The
immediacy of its execution needs no further elaboration. Reinstatement pending appeal
necessitates its immediate execution during the pendency of the appeal, if the law is to
serve its noble purpose. At the same time, any attempt on the part of the employer to
evade or delay its execution, as observed in Panuncillo and as what actually transpired
in Kimberly,23 Composite,24 Air Philippines,25and Roquero,26 should not be
countenanced.
After the labor arbiter’s decision is reversed by a higher tribunal, the employee
may be barred from collecting the accrued wages, if it is shown that the delay in
enforcing the reinstatement pending appeal was without fault on the part of the
employer.
The test is two-fold: (1) there must be actual delay or the fact that the order of
reinstatement pending appeal was not executed prior to its reversal; and (2) the delay
must not be due to the employer’s unjustified act or omission. If the delay is due to the
employer’s unjustified refusal, the employer may still be required to pay the salaries
notwithstanding the reversal of the Labor Arbiter’s decision.
In Genuino, there was no showing that the employer refused to reinstate the employee,
who was the Treasury Sales Division Head, during the short span of four months or
from the promulgation on May 2, 1994 of the Labor Arbiter’s Decision up to the
promulgation on September 3, 1994 of the NLRC Decision. Notably, the former NLRC
Rules of Procedure did not lay down a mechanism to promptly effectuate the self-
executory order of reinstatement, making it difficult to establish that the employer
actually refused to comply.
In a situation like that in International Container Terminal Services, Inc. v.
NLRC27 where it was alleged that the employer was willing to comply with the order and
that the employee opted not to pursue the execution of the order, the Court upheld the
self-executory nature of the reinstatement order and ruled that the salary automatically
accrued from notice of the Labor Arbiter's order of reinstatement until its ultimate
reversal by the NLRC. It was later discovered that the employee indeed moved for the
issuance of a writ but was not acted upon by the Labor Arbiter. In that scenario where
the delay was caused by the Labor Arbiter, it was ruled that the inaction of the Labor
Arbiter who failed to act upon the employee’s motion for the issuance of a writ of
execution may no longer adversely affect the cause of the dismissed employee in view
of the self-executory nature of the order of reinstatement.28
The new NLRC Rules of Procedure, which took effect on January 7, 2006, now require
the employer to submit a report of compliance within 10 calendar days from receipt of
the Labor Arbiter’s decision,29 disobedience to which clearly denotes a refusal to
reinstate. The employee need not file a motion for the issuance of the writ of execution
since the Labor Arbiter shall thereafter motu proprio issue the writ. With the new rules
in place, there is hardly any difficulty in determining the employer’s
intransigence in immediately complying with the order.
In the case at bar, petitioners exerted efforts 30 to execute the Labor Arbiter’s order of
reinstatement until they were able to secure a writ of execution, albeit issued on
October 5, 2000 after the reversal by the NLRC of the Labor Arbiter’s decision.
Technically, there was still actual delay which brings to the question of whether the
delay was due to respondent’s unjustified act or omission.
It is apparent that there was inaction on the part of respondent to reinstate them, but
whether such omission was justified depends on the onset of the exigency of corporate
rehabilitation.
It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions for
claims before any court, tribunal or board against the corporation shall ipso jure be
suspended.31 As stated early on, during the pendency of petitioners’ complaint before
the Labor Arbiter, the SEC placed respondent under an Interim Rehabilitation Receiver.
After the Labor Arbiter rendered his decision, the SEC replaced the Interim
Rehabilitation Receiver with a Permanent Rehabilitation Receiver.
Case law recognizes that unless there is a restraining order, the implementation of the
order of reinstatement is ministerial and mandatory. 32 This injunction or suspension of
claims by legislative fiat33 partakes of the nature of a restraining order that constitutes
a legal justification for respondent’s non-compliance with the reinstatement order.
Respondent’s failure to exercise the alternative options of actual reinstatement and
payroll reinstatement was thus justified. Such being the case, respondent’s obligation
to pay the salaries pending appeal, as the normal effect of the non-exercise of the
options, did not attach.
While reinstatement pending appeal aims to avert the continuing threat or danger to
the survival or even the life of the dismissed employee and his family, it does not
contemplate the period when the employer-corporation itself is similarly in a judicially
monitored state of being resuscitated in order to survive.
The parallelism between a judicial order of corporation rehabilitation as a justification
for the non-exercise of its options, on the one hand, and a claim of actual and imminent
substantial losses as ground for retrenchment, on the other hand, stops at the red line
on the financial statements. Beyond the analogous condition of financial gloom, as
discussed by Justice Leonardo Quisumbing in his Separate Opinion, are more salient
distinctions. Unlike the ground of substantial losses contemplated in a retrenchment
case, the state of corporate rehabilitation was judicially pre-determined by a competent
court and not formulated for the first time in this case by respondent.
More importantly, there are legal effects arising from a judicial order placing a
corporation under rehabilitation. Respondent was, during the period material to the
case, effectively deprived of the alternative choices under Article 223 of the Labor
Code, not only by virtue of the statutory injunction but also in view of the interim
relinquishment of management control to give way to the full exercise of the powers of
the rehabilitation receiver. Had there been no need to rehabilitate, respondent may
have opted for actual physical reinstatement pending appeal to optimize the utilization
of resources. Then again, though the management may think this wise, the
rehabilitation receiver may decide otherwise, not to mention the subsistence of the
injunction on claims.
In sum, the obligation to pay the employee’s salaries upon the employer’s failure to
exercise the alternative options under Article 223 of the Labor Code is not a hard and
fast rule, considering the inherent constraints of corporate rehabilitation.
WHEREFORE, the petition is PARTIALLY DENIED. Insofar as the Court of Appeals
Decision of December 5, 2003 and Resolution of April 16, 2004 annulling the NLRC
Resolutions affirming the validity of the Writ of Execution and the Notice of Garnishment
are concerned, the Court finds no reversible error.
SO ORDERED.
G.R. No. 211537, December 10, 2019
LAND BANK OF THE PHILIPPINES, PETITIONER, v. POLILLO PARADISE ISLAND
CORPORATION, RESPONDENT.
DECISION
REYES, J. JR., J.:
Before this Court is a petition for review on certiorari,1
assailing the Order2
dated May
24, 2013 and Order3 dated January 20, 2014 of the Regional Trial Court of Infanta,
Quezon, Branch 65 (RTC), denying Land Bank of the Philippines's (petitioner)
Comment/Opposition to Polillo Paradise Island Corporation's (respondent) Amended
Petition for Corporate Rehabilitation.
The Antecedents
The records reveal that respondent obtained a P5 Million Short Term Loan Line (STLL)
with petitioner in 2000. As a security thereof, two parcels of land covered by Transfer
Certificate of Title (TCT) No. T-18198 and Original Certificate of Title (OCT) No. P-
12935. TCT No. T-18198 was registered in the name of Aimee and Chris Almeda while
OCT No. P-12935 was registered in the name of Aimee Almeda. 4 Said loan was used
as additional working capital of its hotel business. 5
On February 13, 2001, petitioner approved the request of respondent for the conversion
of its STLL into a 5-year term loan. Not only was such request but also an additional
P1.2 Million STLL was granted.6
Several restructurings were had anent the account of respondent with petitioner.
Despite such, however, respondent failed to pay its loan obligation. Thus, on June 24,
2011, petitioner was constrained to file a petition for extrajudicial foreclosure of the
mortgaged properties.7Subsequently, the mortgaged properties (subject properties)
were sold in the amount of P11,161,047.12, wherein petitioner emerged as the highest
bidder.8 A Certificate of Sale9 was issued and registered before the Registry of Deeds
on August 22, 2011.
As the respondent failed to redeem said properties within the redemption period,
petitioner consolidated its title over the subject properties. Thus, on November 19,
2012, the Register of Deeds of Infanta, Quezon cancelled TCT No. T-18198 and OCT
No. P-12935, and in lieu thereof, issued TCT Nos. 067-2012000395 and 067-
20122000396, respectively, in the name of petitioner. 10
Allegedly, respondent filed a petition for corporate rehabilitation11 on August 17, 2012.
It asserted that its financial viability was greatly affected as the Province of Quezon was
devastated by the typhoon and flood, resulting in the cancellation of functions and
decline in room occupancy; and by the global crisis in 2008. As the decrease in financial
revenues deprived it of enough cash flow to service payment of its debts, respondent
insisted that rehabilitation is the only viable option for it to continue its operations and
settle its liabilities.
In an Order12 dated August 25, 2012, the RTC dismissed the petition for lack of merit.
It took note that there is nothing left to be rehabilitated considering that the subject
properties subject of the foreclosure sale comprise the bulk of respondent's assets.
On October 12, 2012, respondent filed an amended petition13 for corporate
rehabilitation, invoking the application of Republic Act No. 10142 or the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA).
After finding the petition sufficient in form and in substance, the RTC granted the same
in an Order14 dated January 8, 2013 and accordingly issued a
Commencement/Suspension Order15dated January 11, 2013. Said Order directed the
following measures:
Furthermore, a Stay or Suspension Order is likewise issued ordering the following, to
wit[:]
1. [S]uspending all actions or proceedings, in court or otherwise, for the enforcement
of claims against the debtor;
2. [S]uspending all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;
3. [P]rohibiting the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and
4. [P]rohibiting the debtor from making any payment of its liabilities outstanding as of
the commencement date except as may be provided herein.
SO ORDERED.16
Alleging that it was not notified of the petition and surprised to receive the January 11,
2013 Order only on January 18, 2013, petitioner filed its Opposition to or Comment on
the Amended Petition.17 Essentially, petitioner alleged that it is no longer a creditor of
respondent in view of the consolidation of the ownership of the subject properties in its
name following the extrajudicial foreclosure sale; therefore, relieving respondent of any
liability arising from the loan it previously obtained from it. As such, the proceedings
concerning the sale of the subject properties is no longer covered by the FRIA.
In an Order18 dated May 24, 2013, the RTC fortified its earlier order and denied
petitioner's opposition.
A Motion for Reconsideration was filed by petitioner, which was denied in an
Order19 dated January 20, 2014. Reckoning the date of the consolidation of ownership
in petitioner's name as the period as to when the ownership vested, the RTC explained
that when such consolidation took place after the date of the filing of the amended
petition, the same and the proceedings before it are void for being violative of Section
1720 of the FRIA since the ownership of the subject properties still lies with the
respondent at the time that said petition was filed. At this point, the RTC emphasized
that the effects of the Commencement Order, which prohibits or renders null and void
the results of any extrajudicial activity or process to seize property after the
commencement date, can be reckoned from the date of the filing of the amended
petition. Verily, the RTC maintained that the petitioner is still considered as
respondent's creditor within the purview of the law.
Aggrieved, petitioner filed this instant petition, impugning the Orders of the RTC. It
asserted that the effects of the Commencement Order should not extend to the
foreclosed properties already consolidated in its name, considering that the same took
place prior to the commencement date.
In its comment,21 respondent insisted that the consolidation of ownership in the name
of petitioner violated the FRIA because the date of the filing of the petition for corporate
rehabilitation on August 17, 2012, the reckoning point of the effects of the
Commencement Order, precedes such consolidation.
In its reply,22 petitioner disputed that the date of filing of the petition for corporate
rehabilitation is not on August 17, 2012, but on August 22, 2012 as the petition itself
bore such mark. Moreover, it alleged that even assuming that the same was filed on
August 22, 2012, the reckoning period is on October 18, 2012, which is the date of the
filing of the amended petition for corporate rehabilitation. Hence, the commencement
date took place prior to the filing of the petition.
The Issue
Summarily, the issue in this case is whether or not the Commencement Order issued
by the RTC has the effect of rendering void the foreclosure sale of the subject properties
and the effects thereof.
The Court's Ruling
RA No. 10142 or the FRIA defines rehabilitation as the restoration of the debtor to a
condition of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present
value of payments projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.23
Thus, corporate rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency, the purpose being to enable the company to gain a
new lease on life and allow its creditors to be paid their claims out of its earnings. 24
To achieve this end, the rehabilitation court may issue a Commencement Order, which
marks the start of the rehabilitation proceedings. The effects of which is stated under
Section 17, to wit:
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in
this Act, the court's issuance of a Commencement Order shall, in addition to the effects
of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such
as the right to review and obtain records to which the debtor's management and
directors have access, including bank accounts or whatever nature of the debtor subject
to the approval by the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the
results of any extrajudicial activity or process to seize property, sell encumbered
property, or otherwise attempt to collect on or enforce a claim against the debtor
after commencement date unless otherwise allowed in this Act, subject to the
provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against
the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the
court: Provided, however, That the court may allow the continuation of cases on other
courts where the debtor had initiated the suit.
Attempts to seek legal on other resource against the debtor outside these proceedings
shall be sufficient to support a finding of indirect contempt of court.
The FRIA provides that the effects of the Commencement Order shall be reckoned from
the date of the filing of the petition for corporate rehabilitation, be it voluntary or
involuntary.25
Emphatically, the determination of the date of the filing of the petition for rehabilitation is
relevant in ascertaining the extent of the legal effects of a Commencement Order. Thus,
it becomes imperative to identify the pertinent crucial dates surrounding the petition.
It is undisputed that the Commencement Order was issued on January 11, 2013. As to
the date of the filing of the petition, petitioner claimed that the same was filed on August
17, 2012. However, the records reveal otherwise. It is apparent that it was on August
17, 2012 that the petition was prepared by petitioner's counsel, Atty. Rio T. Espiritu; but
it was actually filed on August 22, 2012, as evidenced by the rubber stamp of the RTC.
Moreover, the Notice of Lis Pendens annotated in the titles of the subject properties
reads that the petition for corporate rehabilitation was filed before the RTC on August
22, 2012. In deliberately stating an erroneous fact, petitioner's counsel attempted to
mislead this Court to advocate the case of its client. Such act is, in absolute terms, a
downright violation of a lawyer's duty to act at all times in a manner consistent with the
truth.26
Be that as it may, petitioner still erred in considering August 2012 as the reckoning
point. Significantly, the RTC already dismissed said petition on August 25, 2012 for
being bereft of substance. The October 18, 2012 Amended Petition is in reality not an
amendment to the earlier petition as it was filed only after the RTC dismissed the August
22, 2012 petition. Verily, there was nothing more to amend when the petition had
already been dismissed. Likewise, it must be emphasized that it was the October 18,
2012 petition which was granted by the RTC and initiated the rehabilitation
proceedings. Thus the commencement date is reckoned on October 18, 2012.
As the commencement date is ascertained, it is indispensable to discern the period
where the extrajudicial foreclosure sale and its effects took place as Section 17 of the
FRIA extends only to processes which occurred after the commencement date.
It is undisputed that Certificate of Sale was issued and registered on August 22, 2011.
As such, the last day of the redemption period is on August 22, 2012. The determination
of such expiration date is relevant insofar as the ownership of the subject properties is
concerned. Case law dictates that the purchaser in an extrajudicial foreclosure of real
property becomes the absolute owner of the property if no redemption is made within
one year from the registration of the Certificate of Sale by those entitled to
redeem.27 The consolidation of ownership in the name of the buyer and the issuance
of the new certificate of title merely entitles him to possession thereof as a matter of
right. Nevertheless, upon the purchase of the property and before the lapse of the
redemption period, the buyer is already considered as the owner. In fact, he can
demand possession of the land even during the redemption period except that he has
to post a bond in accordance with Section 7 of Act No. 3135, as amended. 28
Hence, in this case, the ownership of the subject properties was vested upon the
petitioner on August 22, 2012 as its registered owners failed to redeem the same.
Notably, such period precedes the filing of the petition for corporate rehabilitation on
October 18, 2012.
The effect of such sale is to release the debtor from its outstanding obligation. In fact,
petitioner issued a Certification29 stating that respondent fully paid the same by virtue
of the foreclosure sale.
As it is settled that the acquisition of absolute ownership by respondent over the subject
properties on August 22, 2012 is antecedent to the commencement date or the filing of
the petition for corporate rehabilitation on October 18, 2012, the sale of the subject
properties is valid. Corollary, petitioner is no longer considered as respondent's
creditor.
WHEREFORE, premises considered, the instant petition is GRANTED. Accordingly,
the Orders dated May 24, 2013 and January 20, 2014 of the Regional Trial Court of
Infanta, Quezon, Branch 65 are REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 167768 April 17, 2009
MALAYAN INSURANCE COMPANY, INC., Petitioners,
vs.
VICTORIAS MILLING COMPANY, INC., Respondents.
DECISION
NACHURA, J.:
Petitioner Malayan Insurance Company, Inc. assails the Court of Appeals’
Decision1 dated May 21, 2004 and Resolution2 dated April 11, 2005, which affirmed the
suspension of the proceedings on its claim for reimbursement against the respondent
Victorias Milling Company, Inc.
The case arose from the following antecedents:
On July 8, 1997, acting on the verified petition for declaration of a state of suspension
of payments, for the approval of a rehabilitation plan and the appointment of a
management committee, the Securities and Exchange Commission (SEC) issued an
order suspending all pending actions for claims against respondent, thus:
As a consequence of the filing of the instant petition for suspension of payments, all
actions for claims against VICTORIAS MILLING COMPANY, INC., pending before any
court, [t]ribunal, [o]ffice, [b]oard, body, and/or [c]ommission are deemed SUSPENDED
immediately until further order from this Hearing Panel. (RCBC v. IAC, et al., 213
[SCRA] 830; BPI vs. CA, 229 SCRA 223))
Likewise, petitioner [herein respondent] is hereby enjoined from disposing of any and
all of its properties in any manner whatsoever, except in the ordinary course of its
business and from making any payment outside of the legitimate expenses of its
business during the pendency of the proceedings.3
A month later, SEC constituted a Management Committee.
On May 31, 1999, the Labor Arbiter rendered a decision in RAB Case No. 06-08-10553-
98 entitled "Dominador P. Abelido v. Victorias Milling Co., Inc.," ordering respondent to
pay ₱6,605,275.24 to Abelido.
To comply with the requisite bond for an appeal to the National Labor Relations
Commission (NLRC), respondent procured from the petitioner a surety bond (MICO
Bond No. 070117) on July 16, 1999, to secure the satisfaction of the judgment rendered
against it. Under the said surety bond, petitioner bound itself to be jointly and severally
liable with respondent for the sum of ₱6,605,275.24 in the event judgment in the labor
case is affirmed in whole or in part.4
In consideration of the execution of the surety bond, respondent, through its Chief
Financial Officer Romeo Hermoso, executed in favor of petitioner an Indemnity
Agreement5 dated July 16, 1999. In said agreement, respondent bound itself to
indemnify petitioner and to keep it harmless from all damages, costs, penalties, taxes
and other expenses that petitioner may, at any time, incur as a consequence of having
become surety.
As security for its obligation under the Indemnity Agreement, respondent executed a
Deed of Assignment6 dated July 15, 1999 wherein respondent assigned in favor of the
petitioner all of its funds on deposit with the Bank of the Philippine Islands (BPI),
equivalent to the amount of the supersedes bond.
On September 7, 2000, the NLRC rendered a decision affirming the May 31, 1999
Decision of the Labor Arbiter. Consequently, a writ of execution was issued on April 4,
2001.7
On April 10, 2001, Executive Labor Arbiter Oscar Uy issued an order, directing
petitioner to immediately turn over to the NLRC the amount of ₱6,605,275.24 on
account of the writ of execution.8 On April 17, 2001, the Labor Arbiter issued another
order requiring petitioner to explain why it should not be cited for contempt for failure to
comply with its previous order. 9 When petitioner failed to comply, the Labor Arbiter
issued a third order dated May 7, 2001, which ordered petitioner to immediately turn
over to the NLRC the garnished amount equivalent to the amount covered by the surety
bond.10
On May 11, 2001, petitioner served a demand upon BPI for the release of the bank
deposits that respondent had assigned in its favor.11 BPI rejected the demand because
respondent was still challenging the validity of the execution award [in the CA]; and the
validity of the Deed of Assignment may be questioned on the ground that it was
executed without the requisite authority of the Management Committee.12
In a Letter13 dated May 16, 2001, respondent advised petitioner that the issuance and
enforcement of the writ of execution is premature, void and illegal, for which reason,
respondent disavowed any liability liable for whatever consequences resulting from the
premature execution of the decision.
Petitioner replied that it had raised before the NLRC the issues cited in the May 16,
2001 Letter, but the latter was bent on enforcing the writ of execution. Thus, petitioner
requested from respondent a copy of the temporary restraining order (TRO) that it
allegedly procured from the Court of Appeals (CA), with a reminder that, without a TRO,
it would be compelled to comply with the writ of execution to avoid being held in
contempt.14
On May 18, 2001, petitioner released ₱6,605,275.24 to the NLRC. 15 Thereafter,
petitioner made a series of demands for reimbursement against respondent and BPI
but to no avail.16
On January 15, 2003, petitioner filed a complaint for sum of money and damages
against respondent and BPI. BPI filed a motion to dismiss the complaint. Respondent
also filed a motion to dismiss on the ground that it is the SEC that has jurisdiction over
the claim considering that it is under a state of suspension of payments.
Meanwhile, with the approval of the rehabilitation plan, SEC issued an order appointing
a rehabilitation receiver on January 27, 2003.17
Thus, on July 2, 2003, the Regional Trial Court (RTC) issued an order denying BPI’s
motion to dismiss while suspending the proceedings as against respondent, thus:
WHEREFORE, co-defendant BPI’s motion to dismiss dated March 4, 2003 is denied
for lack of merit.
Insofar as co-defendant VMC [Victorias Milling Company, Inc.] is concerned, the herein
proceeding is suspended.
SO ORDERED.18
Petitioner moved for the partial reconsideration of the order insofar as it suspended the
proceedings against respondent. On October 7, 2004, the RTC denied the motion. 19
Subsequently, petitioner filed a petition for certiorari with the CA assailing the said
orders. On May 21, 2004, the CA agreed with the RTC that petitioner’s claim is covered
by the Stay Order; consequently, it dismissed the petition. It stressed that, as held in
Rubberworld (Phils.), Inc. v. NLRC,20 Sec.6(c) of P.D. 902-A does not make any
distinction as to what claims are covered. The appellate court noted that the law
provides that actions for claims shall be suspended "upon appointment of a
management committee or a rehabilitation receiver." It then concluded that, even if the
claim were not covered by the said stay order, the suspension of petitioner’s claim
would still be inevitable considering that at the time the rehabilitation receiver was
appointed by the SEC on January 27, 2003, petitioner’s complaint was already pending
before the trial court. According to the CA, to rule otherwise would defeat the very
purpose of suspension of payments and render inutile the rescue functions of the
management committee.
On April 11, 2005, the CA denied the petitioner’s motion for reconsideration.
Dissatisfied with the CA’s ruling, petitioner now comes to this Court raising the following
issues:
I
WITH ALL DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT BY
VIRTUE OF SECTION 6 (C) OF P.D. 902-A, "ALL ACTIONS FOR CLAIMS" AGAINST
RESPONDENT VICTORIAS MILLING, CO., INC. ("VMC"), WITHOUT ANY
DISTINCTION, ARE SUSPENDED UPON THE APPOINTMENT BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") OF A MANAGEMENT
COMMITTEE FOR RESPONDENT VMC.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN RULING THAT SINCE
THE ACTION OF PETITIONER MICI AGAINST RESPONDENT VMC IN THE CASE
BELOW WAS ALREADY PENDING WHEN THE SEC APPOINTED A
REHABILITATION RECEIVER FOR RESPONDENT VMC, ITS SUSPENSION
"WOULD STILL BE INEVITABLE" AS THE LAW PROVIDES THAT "SUSPENSION OF
ACTIONS COMMENCES UPON APPOINTMENT OF A MANAGEMENT COMMITTEE
OR A REHABILITATION RECEIVER."
III
WITH DUE RESPECT, THE HONORABLE COURT ERRED IN FINDING THAT THE
PAYMENT OF THE INSTANT CLAIM OF PETITIONER MICI WOULD "DEFEAT THE
VERY PURPOSE" OF THE STAY ORDER ISSUED BY THE SEC FOLLOWING THE
APPOINTMENT OF THE MANAGEMENT COMMITTEE FOR RESPONDENT VMC. 21
Petitioner maintains that the Stay Order applies only to claims existing prior to or at the
time of the issuance of the said order. It avers that Sec. 6(c) of P.D. No. 902-A is clear
and categorical that the suspension covers actions for claims which are pending before
any court at the time of the appointment of the management committee or rehabilitation
receiver.22 And, not being a pre-existing claim, payment of petitioner’s claim will not
result in undue preference which is the mischief sought to be prevented by a stay order.
The CA allegedly erred in citing Rubberworld which declared that the suspension is
deemed to cover "all claims" since the law made no distinction or exemption. Petitioner
posits that such pronouncement referred to claims in general, as opposed to labor
claims.23
Petitioner further contends that the suspension of actions commences either upon the
appointment of a management receiver or rehabilitation receiver, not successively as
interpreted by the CA. It argues that the use of the disjunctive word "or" in Sec. 6(c)
signifies that suspension of actions commences either upon appointment of a
management committee or a rehabilitation receiver.
Citing Philippine Blooming Mills, Inc. v. Court of Appeals,24 petitioner submits that, as
surety, it is separately liable for the satisfaction of the judgment award rendered against
the respondent in the labor case. Petitioner lays the blame on the respondent for its
failure to avert the execution of the NLRC Decision.
For its part, respondent posits that it is immaterial when the actions were commenced
as Sec. 6(c) of P.D. 902-A is clear that all actions standing before a court against a
corporation under a management committee must be stayed; hence, even actions for
claims instituted after the appointment of the management committee are covered by
the stay.25 It avers that the stay order is not limited to the claims stated in the Schedule
of Debts and Liabilities.
Respondent counters that, in Rubberworld, this Court applied Sec. 6(c) of P.D. 902-A
and suspended the proceedings in the labor case even if the complaint for illegal
dismissal was filed after the issuance of the stay order. 26 Respondent also cited
Arranza v. B.F. Homes, Inc.27 wherein the class suit was filed 10 years after the
management committee was appointed. Respondent avers that in said case, this Court
did not consider the time of the filing of the claim or when the cause of action accrued.
It points out that, in a later case,28 the Court even concluded that had the claim in
Arranza been for monetary awards, the proceedings to enforce such claim would have
been suspended.
Respondent emphasizes that the petitioner’s claim is for reimbursement of the
monetary award it paid to Abelido in the labor case, which was later ordered suspended
by the CA in CA-GR SP No. 64467. Having originated from an action for a claim that
has been suspended, petitioner’s claim should also be deemed suspended. The
suspension of the labor proceedings by the CA rendered moot the petitioner’s cause of
action; its remedy is now to go against the bond posted by Abelido in the NLRC.
Finally, respondent contends that claims not arising from the operation of the
corporation’s business, whether filed before or after the petition for suspension of
payments, are covered by the SEC Stay Order.29
The petition is bereft of merit.
For our resolution of the instant case, we briefly revisit the following undisputed facts:
On July 8, 1997, the SEC issued a Stay Order, suspending all actions for claims against
respondent pending before any court, tribunal, office, board, body or commission. On
August 8, 1997, the SEC constituted a Management Committee. On May 31, 1999, the
Labor Arbiter rendered a decision in "Abelido v. Victorias Milling", ordering respondent
to pay Abelido the sum of ₱6,605,275.24. On July 16, 1999, respondent procured from
the petitioner a surety bond as a requisite to the filing of an appeal with the NLRC from
the Labor Arbiter’s decision. On September 7, 2000, the NLRC affirmed the decision of
the Labor Arbiter, and a writ of execution was issued on April 4, 2001.
The Executive Labor Arbiter issued three orders (dated April 10, 2001, April 17, 2001,
and May 7, 2001, respectively) directing the petitioner to turn over to the NLRC the
amount of ₱6.605,275.24, on pain of contempt. On May 11, 2001, petitioner served a
demand upon BPI for the release of the bank deposits that respondent had assigned
in its favor, but BPI refused.lawphil.net On May 16, 2001, respondent advised petitioner
that the enforcement of the writ of execution was premature and without legal basis.
The following day, petitioner replied that the NLRC was bent on enforcing the writ, and
sought from the respondent a copy of a TRO, if any, issued by the Court of Appeals.
On May 18, 2001, petitioner released the amount to the NLRC.
Failing to obtain reimbursement from the respondent despite a series of demands,
petitioner, on January 15, 2003, filed a complaint for sum of money with the RTC. On
January 27, 2003, SEC issued an order appointing a rehabilitation receiver for
respondent. On July 2, 2003, the RTC suspended the proceedings against respondent,
and subsequently denied the petitioner’s motion for reconsideration.
Petitioner then went to the CA on a petition for certiorari which the CA dismissed on
May 21, 2004, concurring with the RTC that the SEC Stay Order covered petitioner’s
claim. On April 11, 2005, the CA denied the petitioner’s motion for reconsideration.
Meanwhile, on June 5, 2003, the CA resolved the petition for certiorari filed by the
respondent assailing the NLRC decision. The appellate court, while affirming the NLRC
decision, set aside the latter’s resolution on the respondent’s motion for
reconsideration, and remanded the case to the NLRC for suspension of the
proceedings, ruling that the NLRC decision cannot be enforced while [the respondent]
is under a management committee. 30
Petitioner now comes to us, insisting that since its claim (for reimbursement of the
amount it released to NLRC to satisfy the judgment on the labor claims of Abelido)
arose after the respondent was placed under a management committee, such claim
should not be suspended nor covered by the SEC Stay Order.
The argument must fall.
It must be noted that petitioner’s claim is for reimbursement of whatever it may have
paid to the NLRC as full and final settlement of the award rendered against respondent
in the Abelido case, secured by Security Bond No. 070117.31 In order to resolve
whether said proceedings should be suspended, it is necessary to determine whether
the complaint for sum of money with damages is a "claim" within the contemplation of
P.D. No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals, 32 we construed "claim"
to refer to debts or demands of a pecuniary nature. It means the assertion of a right to
have money paid. Also in Arranza v. B.F. Homes, Inc., 33we referred to it as an action
involving monetary considerations. And in Philippine Airlines v. Kurangking, 34 we said
it is a right to payment, whether or not it is reduced to judgment, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal
or equitable, and secured or unsecured. More importantly, the Interim Rules of
Procedure on Corporate Rehabilitation provides an all-encompassing definition of the
term and thus includes all claims or demands of whatever nature or character against
a debtor or its property, whether for money or otherwise.
Clearly then, the complaint filed by petitioner against respondent falls under the
category of "claim" whether under our rulings in Finasia, Arranza or Kurangking, or as
defined in the Interim Rules, considering that it is for pecuniary considerations.35
We have consistently held in Rubberworld (Phils.) Inc. v. NLRC, 36 in Sobrejuanite v.
ASB Development Corporation,37 and in Garcia v. Philippine Airlines,38 that the
suspension of proceedings referred to in Section 6 (c) of Presidential Decree No. 902-
A, which pertinently provides –
x x x Provided, finally, that upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims
against corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body, shall be suspended
accordingly.391avvphi1
uniformly applies to "all actions for claims" filed against a corporation, partnership or
association under management or receivership, without distinction.40
Aptly cited in the assailed Court of Appeals decision is our pronouncement in
Rubberworld, viz:
x x x The law is clear: upon the creation of a management committee or the appointment
of a rehabilitation receiver, all claims for actions "shall be suspended accordingly." x x
x Since the law makes no distinction or exemptions, neither should this Court. Ubi lex
non distinguit nec nos distinguere debemos.
Along the same vein, in Sobrejuanite, we enunciated:
x x x The interim rules define a claim as referring to all claims or demands, of whatever
nature or character against a debtor or its property, whether for money or otherwise.
The definition is all-encompassing as it refers to all actions whether for money or
otherwise. There are no distinctions or exemptions.
Similarly, in Garcia v. Philippine Airlines, we said:
Since petitioners’ claim against PAL is a money claim for their wages during the
pendency of PAL’s appeal to the NLRC, the same should have been suspended
pending the rehabilitation proceedings. The Labor Arbiter, the NLRC, as well as the
Court of Appeals should have abstained from resolving petitioners’ case for illegal
dismissal and should instead have directed them to lodge their claims before PAL’s
receiver.
and, very recently, in this Court’s en banc Decision in the same Garcia v. Philippine
Airlines,41 we had the occasion to restate this oft-repeated verdict, thus:
It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions for
claims before any court, tribunal or board against the corporation shall ipso jure be
suspended. As stated early on, during the pendency of petitioners’ complaint before
the Labor Arbiter, the SEC placed respondent under an Interim Rehabilitation Receiver.
After the Labor Arbiter rendered his decision, the SEC replaced the Interim
Rehabilitation Receiver with a Permanent Rehabilitation Receiver.
The suspension of action for claims against a corporation under rehabilitation receiver
or management committee embraces all phases of the suit, be it before the trial court
or any tribunal or before this Court. Otherwise stated, what are automatically stayed or
suspended are the proceedings of an action or suit and not just the payment of claims.
Furthermore, the actions that are suspended cover all claims against a distressed
corporation whether for damages founded on a breach of contract of carriage, labor
cases, collection suits or any other claims of a pecuniary nature. 42
The indiscriminate suspension of actions for claims is intended to expedite the
rehabilitation of the distressed corporation. As this Court held in Rubberworld, 43 the
automatic stay of actions is designed "to enable the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or
extrajudicial interference that might unduly hinder or prevent the ‘rescue’ of the debtor
company. To allow such other actions to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation instead of being directed
toward its restructuring and rehabilitation." Thus, in Section 6 (d) of P.D. 902-A, the
management committee or rehabilitation receiver is given the following powers:
(d) To create and appoint a management committee, board, or body upon petition or
motu proprio to undertake the management of corporations, partnerships or other
associations not supervised or regulated by other government agencies in appropriate
cases when there is imminent danger of dissipation, loss, wastage or destruction of
assets or other properties or paralyzation of business operations of such corporations
or entities which may be prejudicial to the interest of minority stockholders, parties-
litigants or the general public: Provided, further, That the Commission may create or
appoint a management committee, board or body to undertake the management of
corporations, partnerships or other associations supervised or regulated by other
government agencies, such as banks and insurance companies, upon request of the
government agency concerned.
It would in effect be a clear defiance of the proscription set forth in the Interim Rules on
"selling, encumbering, transferring, or disposing in any manner any of its (respondent’s)
properties except in the ordinary course of business."44 Certainly, petitioner’s claim for
reimbursement did not arise from the usual operations of respondent’s business.
Neither can we consider it as an ordinary expense for the conduct of its operations.
All told, the suspension of the proceedings before the trial court is therefore imperative.
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of
the Court of Appeals dated May 21, 2004 and its Resolution dated April 11, 2005, are
AFFIRMED.
SO ORDERED.

The management committee or rehabilitation receiver, board or body shall have the
power to take custody of, and control over, all the existing assets and property of such
entities under management; to evaluate the existing assets and liabilities, earnings and
operations of such corporations, partnerships, or other associations, to determine the
best way to salvage and protect the interest of the investors and creditors; to study,
review and evaluate the feasibility of continuing operations and restructure and
rehabilitate such entities if determined to be feasible by the Commission. It shall report
and be responsible to the Commission until dissolved by order of the Commission:
Provided, however, That the Commission may, on the basis of the findings and
recommendation of the management committee, or rehabilitation receiver, board or
body, or on its own findings, determine that the continuance in business of such
corporation or entity would not be feasible or profitable nor work to the best interest of
the stockholders, parties-litigants, creditors, or the general public, order the dissolution
of such corporation entity and its remaining assets liquidated accordingly. The
management committee or rehabilitation receiver, board or body may overrule or
revoke the actions of the previous management and board of directors of the entity or
entities under management notwithstanding any provision of law, articles of
incorporation or by-laws to the contrary.

xxxx

Given these premises, it is not difficult to understand why actions for claims against the
ailing enterprise have to be suspended. It then becomes easy to accept the hypothesis
that the date when the claim arose, or when the action is filed, is of no moment. As long
as the corporation is under a management committee or a rehabilitation receiver, all
actions for claims against it --- for money or otherwise --- must yield to the greater
imperative of corporate rehabilitation, excepting only, as already mentioned, claims for
payment of obligations incurred by the corporation in the ordinary course of business.
Enforcement of writs of execution issued by judicial or quasi-judicial tribunals, since
such writs emanate from "actions for claims," must, likewise, be suspended.

If we allow the reimbursement action to proceed, and if petitioner’s claim is granted, it

would be in a position to assert a preference over other creditors. Worse, respondent
would be compelled to dispose of its properties in order to satisfy the claim of petitioner.
G.R. No. 206528
PHILIPPINE ASSET GROWTH TWO, INC. (Successor-In-Interest of Planters
Development Bank) and PLANTERS DEVELOPMENT BANK, Petitioners,
vs.
FASTECH SYNERGY PHILIPPINES, INC. (Formerly First Asia System
Technology, Inc.), FASTECH MICROASSEMBLY & TEST, INC., FASTECH
ELECTRONIQUE, INC., and FASTECH PROPERTIES, INC., Respondents.
DECISION
PERLAS-BERNABE, J.:
For the Court's resolution is a petition for review on certiorari1assailing the
Decision2 dated September 28, 2012 and the Resolution3 dated March 5, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 122836 which: (a) approved the
Rehabilitation Plan4 of respondents Fastech Synergy Philippines, Inc. (formerly First
Asia System Technology, Inc.) (Fastech Synergy), Fastech .Microassembly & Test, Inc.
(Fastech Microassembly), F astech Electronique, Inc. (F astech Electronique ), and F
astech Properties, Inc. (Fastech Properties; collectively, respondents); (b) enjoined
petitioner Planters Development Bank (PDB) from effecting the foreclosure of
respondents'" properties during the implementation thereof; and (c) remanded the case
to the Regional Trial Court (RTC) of Makati City, Branch 149 (RTC Makati) to supervise
its implementation.
The Facts
On April 8, 2011, respondents filed a verified Joint Petitions5 for corporate rehabilitation
(rehabilitation petition) before the RTC-Makati, with prayer for the issuance of a Stay or
Suspension Order,6 docketed as SP Case No. M-7130. They claimed that: (a) their
business operations and daily affairs are being managed by the same individuals;7(b)
they share a majority of their common assets; 8 and (c) they have common creditors
and common liabilities.9
Among the common creditors listed in the rehabilitation petition was PDB, 10which had
earlier filed a petition 11 for extra judicial foreclosure of mortgage over the two (2)
parcels of land, covered by Transfer Certificate of Title (TCT) Nos. T-45810212 and T-
458103 13 and registered in the name of Fastech Properties (subject
properties), 14 listed as common assets of respondents in the rehabilitation
petition. 15 The foreclosure sale was held on April 13, 2011, with PDB emerging as the
highest bidder. 16 Respondents claimed that this situation has impacted on their chance
to recover from the losses they have suffered over the years, since the said properties
are being used by Fastech Microassembly and Fastech Electronique17 in their business
operations, and a source of significant revenue for their owner-lessor, Fastech
Properties. 18 Hence, respondents submitted for the court's approval their proposed
Rehabilitation Plan, 19 which sought: (a) a waiver of all accrued interests and
penalties; (b) a grace period of two (2) years to pay the principal amount of
respondents' outstanding loans, with the interests accruing during the said period
capitalized as part of the principal, to be paid over a twelve (12)-year period after the
grace period; and (c) an interest rate of four percent (4%) and two percent (2%) per
annum (p.a.) for creditors whose credits are secured by real estate and chattel
mortgages, respectively. 20
On April 19, 2011, the RTC-Makati issued a Commencement Order with Stay
Order,21 and appointed Atty. Rosario S. Bernaldo as Rehabilitation Receiver, which the
latter subsequently accepted.22
After the initial hearing on May 18, 2011, and the filing of the comments/oppositions on
the rehabilitation petition,23the RTC-Makati gave due course to the said petition, and,
thereafter, referred the same to the court-appointed Rehabilitation Receiver, who
submitted in due time her preliminary report, 24 opining that respondents may be
rehabilitated, considering that their assets appear to be sufficient to cover their
liabilities, but reserved her comment to the Rehabilitation Plan's underlying
assumptions, financial goals, and procedures to accomplish said goals after the
submission of a revised rehabilitation plan as directed by the RTC-Makati, 25 which
respondents subsequently complied. 26
After the creditors had filed their respective comments and/or oppositions to the revised
Rehabilitation Plan, and respondents had submitted their consolidated reply27 thereto,
the court-appointed Rehabilitation Receiver submitted her comments, 28 opining that
respondents may be successfully rehabilitated, considering the sufficiency of their
assets to cover their liabilities and the underlying assumptions, financial projections and
procedures to accomplish said goals in their Rehabilitation Plan. 29
The RTC-Makati Ruling
In a Resolution30 dated December 9, 2011, the RTC-Makati dismissed the rehabilitation
petition despite the favorable recommendation of its appointed Rehabilitation Receiver.
It found the facts and figures submitted by respondents to be unreliable in view of the
disclaimer of opinion of the independent auditors who reviewed respondents' 2009
financial statements, 31 which it considered as amounting to a "straightforward
unqualified adverse opinion."32 In the same vein, it did not give credence to the
unaudited 2010 financial statements as the same were mere photocopied documents
and unsigned by any of respondents' responsible officers. 33 It also observed that
respondents added new accounts and/or deleted/omitted certain
accounts.34 Furthermore, it rejected the revised financial projections as the bases for
which were not submitted for its evaluation on the ground of confidentiality. 35
Aggrieved, respondents appealed36 to the CA, with prayer for the issuance of a
temporary restraining order (TRO) and/or a writ of preliminary injunction (WPI),
docketed as CA-G.R. SP No. 122836.
The Proceedings Before the CA
In a Resolution dated January 24, 2012, the CA issued a TRO37 so as not to render
moot and academic the case before it in view of PDB 's pending Ex-Parte Petition for
Issuance of a Writ of Possession over the subject properties before the RTC of Biñan,
Laguna, docketed as LRC Case No. B-5141.38 Thereafter, the CA issued a WPI39 on
March 22, 2012.
On April 30, 2012, the court-appointed Rehabilitation Receiver submitted a
manifestation40 before the CA, maintaining that the rehabilitation of respondents is
viable since the financial projections and procedures set forth to accomplish the goals
in their Rehabilitation Plan are attainable.41
After the creditors and respondents had filed their respective comments and reply to
the manifestation, the CA rendered a Decision 42 dated September 28, 2012
(September 28, 2012 Decision), reversing and setting aside the RTC-Makati ruling.43 It
ruled that the RTC-Makati grievously erred in disregarding the report/opinion of the
Rehabilitation Receiver that respondents may be successfully rehabilitated, despite
being highly qualified to make an opinion on accounting in relation to rehabilitation
matters.44 It likewise observed that the RTC-Makati failed to distinguish the difference
between an adverse or negative opinion and a disclaimer or when an auditor cannot
formulate an opinion with exactitude for lack of sufficient data. 45 Finally, the CA
declared that the Rehabilitation Plan is feasible and should be approved, finding that
respondents would be able to meet their obligations to their creditors within their
operating cash profits and other assets without disrupting their business operations,
which will be beneficial to their creditors, employees, stockholders, and the economy.46
Accordingly, the CA reinstated the rehabilitation petition, approved respondents'
Rehabilitation Plan, and remanded the case to the RTC-Makati to supervise its
implementation.1âwphi1 Considering that respondents' creditors are placed in equal
footing as a necessary consequence, it permanently enjoined PDB from "effecting the
foreclosure" of the subject properties during the implementation of the Rehabilitation
Plan.47
Dissatisfied, PDB filed a motion for reconsideration48 which was, however, denied in a
Resolution49 dated March 5, 2013 (March 5, 2013 Resolution).
In the interim, DivinaLaw entered50 its appearance as the new lead counsel of PDB, in
collaboration51 and with the conformity of its counsel of record, Janda Asia &
Associates.52 On April 3, 2013, DivinaLaw, on behalf of petitioner Philippine Asset
Growth Two, Inc. (P AGTI), filed a Motion for Substitution of Parties (motion for
substitution),53averring that PAGTI had acquired PDB 's claims and interests in the
instant case, hence, should be substituted as a party therein.
The Proceedings Before the Court
On April 18, 2013, PAGTI and PDB (petitioners), represented by DivinaLaw, filed the
instant petition, claiming that PDB received a copy of the March 5, 2013 Resolution on
April 3, 2013.54
On July 10, 2013, respondents filed their Urgent Motion to Dismiss Petition for Review
on Certiorari for Being Filed Out of Time55 (urgent motion), positing that contrary to
petitioners' claim that PDB received notice of the March 5, 2013 Resolution on April 3,
2013, its counsel, Janda Asia & Associates, already received a copy of the said
resolution on March 12, 2013. Thus, petitioners only had until March 27, 2013 to file a
petition for review on certiorari before the Court, and the petition filed on April 18, 2013
was filed out oftime.56
Meanwhile, the Court required respondents to file their comment 57 to the petition, and
subsequently directed petitioners to submit their comment on respondents' urgent
motion, and reply to the latter's comment. 58
In their Comment,59 respondents prayed for the dismissal of the petition and reiterated
their stand that the same was filed out of time, arguing that the receipt of the March 5,
2013 Resolution on March 12, 2013 by Janda Asia & Associates, which remained as
collaborating counsel of PDB, binds petitioners and started the running of the fifteen
(15)-day period within which to file a petition for review on certiorari before the Court.
Thus, the petition filed on April 18, 2013 was filed beyond the reglementary
period. 60 Respondents likewise maintained the viability of the rehabilitation plan, which
will benefit not only their employees, but their stockholders, creditors, and the general
public.61
For their part, petitioners contended62 that: (a) the date of receipt of petitioners' lead
counsel, i.e., DivinaLaw's receipt of the March 5, 2013 Resolution, should be the
reckoning point of the fifteen (15)-day period within which to file the instant petition,
since only the lead counsel is entitled to service of court processes, 63 citing the case
of Home Guaranty Corporation v. R-II Builders,Inc.; 64and (b) the CA erred in not
upholding the dismissal of the rehabilitation petition despite the insufficiency of the
Rehabilitation Plan which was based on financial statements that contained misleading
statements, and financial projections that are mere unfounded assumptions/
speculations. 65
Thereafter, respondents filed a Manifestation and Update (Re: Compliance to [the CA]
Decision dated September 28, 2012)66 before the Court, stating that it had achieved
the EBITDA 67 requirement of the Rehabilitation Plan and made quarterly payments in
favor of the bank and non-bank creditors from December 28, 2014 to September 28,
2015, totalling ₱27,l 19,481.79.68 However, the amount of ₱8,364,836.53 in favor of
PDB was not accepted, and is being held by respondents.69
The IssuesBefore the Court
The essential issues for the Court's resolution are: (a) whether or not the petition for
review on certiorari was timely filed; and (b) the Rehabilitation Plan is feasible.
The Court's Ruling
I.
The Court first resolves the procedural issue anent the timeliness of the petition's filing.
It is a long-standing doctrine that where a party is represented by several counsels,
notice to one is sufficient, and binds the said party. 70 Notice to any one of the several
counsels on record is equivalent to notice to all, and such notice starts the running of
the period to appeal notwithstanding that the other counsel on record has not received
a copy of the decision or resolution.71
In the present case, PDB was represented by both Janda Asia & Associates and
DivinaLaw. It was not disputed that Janda Asia & Associates, which remained a counsel
of record, albeit, as collaborating counsel, received notice of the CA's March 5, 2013
Resolution on March 12, 2013. As such, it is from this date, and not from DivinaLaw's
receipt of the notice of said resolution on April 3, 2013 that the fifteen (15)-day
period72 to file the petition for review on certiorari before the Court started to run.
Hence, petitioners only had until March 27, 2013 to file a petition for review
on certiorari before the Court, and the petition filed on April 18, 2013 was filed out of
time. Notably, there is no showing that the CA had already resolved PAGTI's motion
for substitution; 73 hence, it remained bound by the proceedings and the judgment
rendered against its transferor, PDB. Generally, the failure to perfect an appeal in the
manner and within the period provided for by law renders the decision appealed from
final and executory, 74 and beyond the competence of the Court to review. However,
the Court has repeatedly relaxed this procedural rule in the higher interest of substantial
justice. In Barnes v. Padilla,75it was held that:
[A] final and executory judgment can no longer be attacked by any of the parties or be
modified, directly or indirectly, even by the highest court of the land.
However, this Court has relaxed this rule in order to serve substantial justice[,]
considering (a) matters of life, liberty, honor or property, (b) the existence of special or
compelling circumstances, (c) the merits of the case, (d) a cause not entirely
attributable to the fault or negligence of the party favored by the suspension of the rules,
(e) a lack of any showing that the review sought is merely frivolous and dilatory, and (f)
the other party will not be unjustly prejudiced thereby. 76
After a meticulous scrutiny of this case, the Court finds that the unjustified rehabilitation
of respondents, by virtue of the CA ruling if so allowed to prevail, warrants the relaxation
of the procedural rule violated by petitioners in the higher interest of substantial justice.
The reasons therefor are hereunder explained.
II.
Rehabilitation is statutorily defined under Republic Act No. 10142,77 otherwise known
as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA), as follows:
Section 4. Definition of Terms. - As used in this Act, the term:
xxxx
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated. (Emphasis supplied)
Case law explains that corporate rehabilitation contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to
enable the company to gain a new lease on life and allow its creditors to be paid
their claims out of its earnings. 78 Thus, the basic issues in rehabilitation proceedings
concern the viability and desirability of continuing the business operations of the
distressed corporation,79 all with a view of effectively restoring it to a state of solvency
or to its former healthy financial condition through the adoption of a rehabilitation plan.
III.
In the present case, however, the Rehabilitation Plan failed to comply with the minimum
requirements, i.e.: (a) material financial commitments to support the rehabilitation plan;
and (b) a proper liquidation analysis, under Section 18, Rule 3 of the 2008 Rules of
Procedure on Corporate Rehabilitation80 (Rules), which Rules were in force at the time
respondents' rehabilitation petition was filed on April 8, 2011:
Section 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but not
limited, to the non-impairment of their security liens or interests; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the
execution of the rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale or exchange or any disposition of
assets or of the interest of shareholders, partners or members; (e) a liquidation
analysis setting out for each creditor that the present value of payments it would
receive under the plan is more than that which it would receive if the assets of
the debtor were sold by a liquidator within a six-month period from the estimated
date of filing of the petition; and (f) such other relevant information to enable a
reasonable investor to make an informed decision on the feasibility of the rehabilitation
plan. (Emphases supplied)
The Court expounds.
A. Lack of Material Financial Commitment
to Support the Rehabilitation Plan.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness, and good faith of the distressed corporation in financing
the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness, and ability to contribute funds or property to
guarantee the continued successful operation of the debtor-corporation during
the period of rehabilitation.81
In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his executed
Affidavit of General Financial Condition82 dated April 8, 2011, averred that
respondents will not require the infusion of additional capital as he, instead, proposed
to have all accrued penalties, charges, and interests waived, and a reduced interest
rate prospectively applied to all respondents' obligations, in addition to the
implementation of a two (2)-year grace period.83 Thus, there appears to be no concrete
plan to build on respondents' beleaguered financial position through substantial
investments as the plan for rehabilitation appears to be pegged merely on financial
reprieves. Anathema to the true purpose of rehabilitation, a distressed corporation
cannot be restored to its former position of successful operation and regain solvency
by the sole strategy of delaying payments/waiving accrued interests and penalties at
the expense of the creditors.
The Court also notes that while respondents have substantial total assets, a large
portion of the assets of Fastech Synergy84 and Fastech Properties85 is comprised of
noncurrent assets, 86 such as advances to affiliates which include Fastech
Microassembly, 87 and investment properties which form part of the common assets of
Fastech Properties, Fastech Electronique, and Fastech Microassembly. 88 Moreover,
while there is a claim that unnamed customers have made investments by way of
consigning production equipment, and advancing money to fund procurement of
various equipment intended to increase production capacity, 89 this can hardly be
construed as a material financial commitment which would inspire confidence that the
rehabilitation would turn out to be successful. Case law holds that nothing short of
legally binding investment commitment/s from third parties is required to qualify as a
material financial commitment.90 Here, no such binding investment was presented.
B. Lack of Liquidation Analysis.
Respondents likewise failed to include any liquidation analysis in their Rehabilitation
Plan. The total liquidation assets and the estimated liquidation return to the creditors,
as well as the fair market value vis-a-vis the forced liquidation value of the fixed assets
were not shown. As such, the Court could not ascertain if the petitioning debtor's
creditors can recover by way of the present value of payments projected in the plan,
more if the debtor continues as a going concern than if it is immediately liquidated. This
is a crucial factor in a corporate rehabilitation case, which the CA, unfortunately, failed
to address.
C. Effect of Non-Compliance.
The failure of the Rehabilitation Plan to state any material financial commitment to
support rehabilitation, as well as to include a liquidation analysis, renders the CA's
considerations for approving the same, i.e., that: (a) respondents would be able to meet
their obligations to their creditors within their operating cash profits and other assets
without disrupting their business operations; (b)the Rehabilitation Receiver's opinion
carries great weight; and (c) rehabilitation will be beneficial for respondents' creditors,
employees, stockholders, and the economy, 91 as actually unsubstantiated, and
hence, insufficient to decree the feasibility of respondents' rehabilitation. It is well to
emphasize that the remedy of rehabilitation should be denied to corporations that do
not qualify under the Rules. Neither should it be allowed to corporations whose sole
purpose is to delay the enforcement of any of the rights of the creditors.
Even if the Court were to set aside the failure of the Rehabilitation Plan to comply with
the fundamental requisites of material financial commitment to support the rehabilitation
and an accompanying liquidation analysis, a review of the financial documents
presented by respondents fails to convince the Court of the feasibility of the proposed
plan.
IV.
The test in evaluating the economic feasibility of the plan was laid down in Bank of the
Philippine Islands v. Sarabia Manor Hotel Corporation92 (Bank of the Philippine
Islands), to wit:
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative
that a thorough examination and analysis of the distressed corporation's financial data
must be conducted. If the results of such examination and analysis show that there is
a real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the other hand, if the results
of the financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation.93
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Jnc.,94the
Court took note of the characteristics of an economically feasible rehabilitation plan as
opposed to an infeasible rehabilitation plan:
Professor Stephanie V. Gomez of the University of the Philippines College of Law
suggests specific characteristics of an economically feasible rehabilitation plan:
a. The debtor has assets that can generate more cash if used in its daily operations
than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate
enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full implementation
of a Rehabilitation Plan that is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow that the distressed
corporation will obtain from rehabilitating its assets and operations. A corporation's
assets may be more than its current liabilities, but some assets may be in the form of
land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that
these assets generate more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics of a rehabilitation plan that
is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution of the
business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully depreciated.
In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also
suggests that the Financial and Rehabilitation and Insolvency Act of 2010 emphasizes
on rehabilitation that provides for better present value recovery for its creditors.
Present value recovery acknowledges that, in order to pave way for rehabilitation, the
creditor will not be paid by the debtor when the credit falls due. The court may order a
suspension of payments to set a rehabilitation plan in motion; in the meantime, the
creditor remains unpaid. By the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past has a different value in the
future. It is unfair if the creditor merely receives the face value of the debt. Present
value of the credit takes into account the interest that the amount of money would have
earned if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business' rehabilitation
plan allows for the closest present value recovery for its creditors. If the projected cash
flow is realistic and allows the corporation to meet all its obligations, then courts should
favor rehabilitation over liquidation. However, if the projected cash flow is unrealistic,
then courts should consider converting the proceedings into that for liquidation to
protect the creditors.95
A perusal of the 2009 audited financial statements shows that respondents' cash
operating position96 was not even enough to meet their maturing obligations. Notably,
their current assets were materially lower than their current liabilities, 97 and consisted
mostly of advances to related parties in the case of Fastech Microassembly, Fastech
Electronique, and Fastech Properties.98 Moreover, the independent auditors
recognized the absence of available historical or reliable market information to support
the assumptions made by the management to determine the recoverable amount
(value in use) of respondents' properties and equipment.99
On the other hand, respondents' unaudited financial statements for the year 2010, and
the months of February and March 2011 were unaccompanied by any notes or
explanation on how the figures were arrived at. Besides, respondents' cash operating
position remained insufficient to meet their maturing obligations as their current assets
are still substantially lower than their current liabilities. 100 The Court also notes the
RTC-Makati's observation that respondents added new accounts and/or
deleted/omitted certain accounts, 101 but failed to explain or justify the same.
Verily, respondents' Rehabilitation Plan should have shown that they have enough
serviceable assets to be able to continue its business operation. In fact, as opposed to
this objective, the revised Rehabilitation Plan still requires "front load Capex spending"
to replace common equipment and facility equipment to ensure sustainability of
capacity and capacity robustness, 102 thus, further sacrificing respondents' cash flow.
In addition, the Court is hard-pressed to see the effects of the outcome of the
streamlining of respondents' manufacturing operations on the carrying value of their
existing properties and equipment.
In fine, the Rehabilitation Plan and the financial documents submitted in support thereof
fail to show the feasibility of rehabilitating respondents' business.
V.
The CA's reliance on the expertise of the court-appointed Rehabilitation Receiver, who
opined that respondents' rehabilitation is viable, in order to justify its finding that the
financial statements submitted were reliable, overlooks the fact that the determination
of the validity and the approval of the rehabilitation plan is not the responsibility of the
rehabilitation receiver, but remains the function of the court. The rehabilitation receiver's
duty prior to the court's approval of the plan is to study the best way to rehabilitate the
debtor, and to ensure that the value of the debtor's properties is reasonably maintained;
and after approval, to implement the rehabilitation plan. 103 Notwithstanding the
credentials of the court-appointed rehabilitation receiver, the duty to determine the
feasibility of the rehabilitation of the debtor rests with the court. While the court may
consider the receiver's report favorably recommending the debtor's rehabilitation, it is
not bound thereby if, in its judgment, the debtor's rehabilitation is not feasible.
The purpose of rehabilitation proceedings is not only to enable the company to gain a
new lease on life, but also to allow creditors to be paid their claims from its earnings
when so rehabilitated. Hence, the remedy must be accorded only after a judicious
regard of all stakeholders' interests; it is not a one-sided tool that may be graciously
invoked to escape every position of distress. 104 Thus, the remedy of rehabilitation
should be denied to corporations whose insolvency appears to be irreversible and
whose sole purpose is to delay the enforcement of any of the rights of the creditors,
which is rendered obvious by: (a)the absence of a sound and workable business plan;
(b)baseless and unexplained assumptions, targets, and goals; and (c) speculative
capital infusion or complete lack thereof for the execution of the business plan, 105 as
in this case.
VI.
In view of all the foregoing, the Court is therefore constrained to grant the instant
petition, notwithstanding the preliminary technical error as above-discussed. A
distressed corporation should not be rehabilitated when the results of the financial
examination and analysis clearly indicate that there lies no reasonable probability that
it may be revived, to the detriment of its numerous stakeholders which include not only
the corporation's creditors but also the public at large. In Bank of the Philippine
Islands: 106
Recognizing the volatile nature of every business, the rules on corporate rehabilitation
have been crafted in order to give companies sufficient leeway to deal with debilitating
financial predicaments in the hope of restoring or reaching a sustainable operating form
if only to best accommodate the various interests of all its stakeholders, may it be the
corporation's stockholders, its creditors, and even the general public. 107
Thus, the higher interest of substantial justice will be better subserved by the reversal
of the CA Decision. Since the rehabilitation petition should not have been granted in
the first place, it is of no moment that the Rehabilitation Plan is currently under
implementation. While payments in accordance with the Rehabilitation Plan were
already made, the same were only possible because of the financial reprieves and
protracted payment schedule accorded to respondents, which, as above-intimated,
only works at the expense of the creditors and ultimately, do not meet the true purpose
of rehabilitation.
WHEREFORE, the petition is GRANTED. The Decision dated September 28, 2012
and the Resolution dated March 5, 2013 of the Court of Appeals in CA-G.R. SP No.
122836 are hereby REVERSED and SET ASIDE. Accordingly, the Joint Petition for
corporate rehabilitation filed by respondents Fastech Synergy Philippines, Inc.
(formerly First Asia System Technology, Inc.), Fastech Microassembly & Test, Inc.,
Fastech Electronique, Inc., and Fastech Properties, Inc., before the Regional Trial
Court ofMakati City, Branch 149 in SP Case No. M-7130 is DISMISSED.
SO ORDERED.
G.R. No. 191939, March 14, 2018
ALLIED BANKING CORPORATION, Petitioner,1v. IN THE MATTER OF THE
PETITION TO HAVE STEEL CORPORATION OF THE PHILIPPINES PLACED
UNDER CORPORATE REHABILITATION WITH PRAYER FOR THE APPROVAL OF
THE PROPOSED REHABILITATION PLAN, EQUITABLE PCI BANK,
INC., Respondent.
DECISION
MARTIRES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the 22 July 2008 Decision2 and 12 April 2010 Resolution3 of the Court of Appeals (CA)
in CA-G.R. SP No. 97206. The CA affirmed the 22 November 2006 Resolution of the
Regional Trial Court (RTC or the rehabilitation court), Branch 2, Batangas City, in Spec.
Proc. No. 06-7993, which ordered the bank creditors of Steel Corporation of the
Philippines (SCP) to unfreeze and restore the latter's bank accounts to the possession,
control, and custody of the rehabilitation receiver.
THE FACTS
On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition
for the corporate rehabilitation of its debtor SCP with the RTC.
EPCIB alleged, among others, that due to the onslaught of the 1997 Asian Financial
Crisis, SCP began experiencing a downward trend in its financial condition which
prompted various banks and financial institutions to grant it with term loan facilities and
working capital lines; that SCP failed to make timely payments on its term loan facilities;
that SCP also defaulted on its loan obligations under the December 2002 Omnibus
Agreement,4 where lending banks and other financial institutions agreed to reschedule
and restructure SCP's payments on the principal loan and interest, reinstate its working
capital lines and establish a new trade financing line; and that the petition for corporate
rehabilitation is grounded on Section 1, Rule 4 of the Interim Rules of Corporate
Rehabilitation, which provides that "any debtor who foresees the impossibility of
meeting its debts when they respectively fall due, or any creditor or creditors holding at
least twenty-five percent (25%) of the debtor's total liabilities, may petition the proper
Regional Trial Court to have the debtor placed under rehabilitation."
Apart from the foregoing agreements, Allied Banking Corporation (ABC) granted SCP
with a revolving credit facility denominated as a letter of credit/trust receipt line in the
amount of P100 million, which SCP availed of to finance the importation of its raw
materials. Pursuant to this arrangement, SCP executed a trust receipt (TR),5 which
authorizes ABC to charge SCP's account in its possession under instances specified
in paragraph 9 thereof, viz:
In the event of any bankruptcy, insolvency, suspension of payment, or failure, or
assignment for the benefit of creditors, on my/our part, or of the non-fulfillment of any
obligation, or of the non-payment at maturity of any acceptance specified hereon or
under any credit issued by the ALLIED BANKING CORPORATION for my/our account,
or of the non-payment of any indebtedness on my/our part to the said bank, all
obligations, acceptances, indebtedness, and liabilities whatsoever shall thereupon
(with or without notice) mature and become due and payable. The ALLIED BANKING
CORPORATION is hereby constituted my/our attorney-in-fact, with authority to
examine my/our books and records, to charge my/our account or to sell any other
property of mine/ours in its possession, and to liquidate any or all of my/our obligations
under this Trust Receipt.
The RTC Ruling
On 12 September 2006, the RTC issued an Order6 (the subject order) granting EPCIB's
petition, the dispositive portion of which reads:
WHEREFORE, finding the petition to be sufficient in form and substance, this Order is
hereby issued—
(a) Appointing Santiago T. Gabionza Jr., with address at Villanueva Gabionza and De
Santos Law Offices, 20/F 139 Corporate Center, Valero Street, Salcedo Village, Makati
City, as Rehabilitation Receiver of Steel Corporation of the Philippines, directing him to
assume his position as such upon the taking of an oath before the Branch Clerk of this
Court and after posting a bond in the amount of P300,000.00 to guarantee the faithful
discharge of his duties and obedience to the Orders of this Court;
(b) Upon acceptance by Santiago T. Gabionza, Jr. of his appointment as Rehabilitation
Receiver, directing him:
[i] to take possession, control and custody of the assets of the debtor Steel Corporation
of the Philippines;
[ii] to closely oversee and monitor the operations of the said debtor corporation during
the pendency of the proceedings and to immediately report to this Court any material
adverse change in its business;
[iii] to ensure that the value of the properties of Steel Corporation of the Philippines are
reasonably maintained pending the termination of whether or not it should be
rehabilitated;
[iv] to investigate the acts, conduct, properties, liabilities, and financial condition of the
debtor-corporation, the operation of its business and the desirability of the continuance
thereof, and any matter relevant to the proceedings or to the formulation of a
rehabilitation plan;
[v] to report to this Court any fact ascertained by him pertaining to the causes of the
debtor's problems, fraud, preferences, dispositions, encumbrances, misconduct,
mismanagement, and irregularities committed by the stockholders, directors,
management, or any other person against the debtor;
[vi] to evaluate the existing assets and liabilities, earnings and operations of the said
debtor-corporation;
[vii] to determine and recommend to this Court the best way to salvage and protect the
interests of the creditors, stockholders and the general public;
[viii] to exercise such powers and prerogatives stated above as may be necessary and
proper under the law and the Interim Rules of Procedure on Corporate Rehabilitation
over all other corporations, persons or entities as may be affected by these
proceedings;
[ix] to apply to this Court for any order or directive that he may deem necessary or
desirable to aid him in the exercise of his powers and performance of his duties and
functions.
(c) Staying all claims against SCP, by all other corporations, persons or entities
insofar as they may be affected by the present proceedings, until further notice
from this Court, pursuant to Sec. 6, of Rule 4 of the Interim Rules of Procedure
on Corporate Rehabilitation. Steel Corporation of the Philippines is hereby prohibited
from selling, encumbering, transferring or disposing in any manner of its assets and
properties except in the ordinary course of its business and as may be approved by the
Rehabilitation Receiver.
The suppliers of goods or services of Steel Corporation of the Philippines are prohibited
from withholding supply of goods and services in the ordinary course of business for as
long as it is able to make payment for the services and goods supplied after the
issuance of this Order.
Steel Corporation of the Philippines is directed to pay in full the administrative expenses
incurred after the issuance of this Order.
The petitioner is directed to publish this Order in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks.
All other creditors and all interested parties, including the Securities and Exchange
Commission, are directed to file and serve on the petitioner, thru their counsels on
record, Divina and Uy Law Offices, 8th Floor, Pacific Star Building, Makati Avenue
corner Sen. Gil Puyat Ave., Makati City, a verified comment on the petition, with
supporting affidavits and documents, not later than ten (10) days before the date of the
initial hearing. Failure to do so will constitute a bar on such creditors and all interested
parties from participating in the proceedings.
xxx
SO ORDERED. (emphasis supplied)
On 15 September 2006, petitioner applied the remaining proceeds of SCP's Current
Account No. 1801-004-87-6 (subject account) in the amount of P6,750,000.00,
maintained with its Aguirre Branch, to its obligations under the TR.
On 29 October 2006, SCP filed an urgent omnibus motion alleging that petitioner
violated the rehabilitation court's stay order when it applied the proceeds of its current
account to the payment of obligations covered by the stay order. Consequently, it
prayed for ABC to immediately restore its current account, credit back to said account
the amount of P6,750,000.00, and honor any and all transactions of SCP in said
account.
On 2 November 2006, ABC filed an opposition, mainly contending that SCP's
obligations with it had become due and demandable, rendering legal compensation
valid and proper; that petitioner did not violate the stay order, as it had no notice of its
issuance at the time of the legal compensation; and that petitioner cannot be legally
compelled to extend credit to SCP against its will.
On 22 November 2006, the RTC issued a resolution (the subject resolution), finding
merit in SCP's position, to wit:
WHEREFORE, in view of all the foregoing, the Court hereby orders as follows:
xxx
3. ABC to restore SCP's Current Account No. 1801-004-87-6 at Aguirre Branch, Makati
City, and to credit back to the said account the entire deposit balance therein of
P6,750,000.00 and to honor any and all transactions of SCP in said account as may be
approved by the Rehabilitation Receiver.
xxx
Aggrieved, ABC filed a petition for review under Rule 43 with the CA.
The CA Ruling
The CA affirmed the resolution of the RTC, viz:
WHEREFORE, the November 22, 2006 Resolution of the Regional Trial Court, Branch
2, Batangas City, in Sp. Proc. No. 06-7993, is AFFIRMED.
The CA ruled that the RTC's stay order was effective from the date of its issuance on
12 September 2006, on the basis of Section 11, Rule 4, and Section 5, Rule 3, of the
Interim Rules of Corporate Rehabilitation; thus, ABC was bound to comply with it on
said date. The CA also ruled that the subject account was already under custodia
legis by virtue of the stay order, rendering ABC's unilateral application of the proceeds
in the subject account improper. On the issue of impairment of contractual rights, the
CA held that no impairment exists because no changes were made in the amount or
rate of SCP's debt to ABC. Only the enforcement of the latter's claims is being stayed
or suspended.
Unconvinced, ABC filed a motion for reconsideration of the CA decision, which was
denied by the CA in its resolution; hence, the instant petition.
The present petition
ABC contends that it was deprived of its right to due process when the RTC ordered
ABC to restore SCP's current account and to credit back the amount previously set off.
ABC asserts that it was not yet bound by the 12 September 2006 stay order when it
made the setoff on 15 September 2006 because jurisdiction over it had not yet been
acquired by the rehabilitation court; the stay order was only published on 16 September
2006.
ABC further contends that when it offset the proceeds in the subject account, it merely
applied the provisions of law on legal compensation, since SCP had already incurred a
default in its obligations rendering operative the terms of the TR it had issued.
ISSUES
ABC raises the following issues:
I. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER
COURT'S DECISION THAT PETITIONER ABC IS BOUND BY THE SEPTEMBER 12,
2006 STAY ORDER THEREBY UNLAWFULLY DEPRIVING THE PETITIONER OF
ITS RIGHT TO DUE PROCESS OF LAW.
II. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER
COURT'S DECISION THAT PETITIONER ABC IS PROHIBITED FROM APPLYING
THE PROCEEDS OF THE DEPOSIT ACCOUNT OF STEEL CORPORATION TO ITS
OUTSTANDING OBLIGATIONS FROM THE DATE OF THE ISSUANCE OF THE
STAY ORDER ON 12 SEPTEMBER 2006, AS THE SAID PROCEEDS ARE
ALREADY UNDER CUSTODIA LEGIS, BY VIRTUE OF THE STAY ORDER.
THE COURT'S RULING
The central argument to the present petition is that the RTC could not invalidate an act
already consummated prior to the date that the subject order was published, since it
was only on said date that the court acquired jurisdiction over ABC. ABC primarily
bases its assertion on Section 1, Rule 3 of the Interim Rules, 7 which considers
rehabilitation proceedings as in rem and jurisdiction over all those affected acquired
only upon publication of the notice commencing proceedings.
This Court is thus tasked to determine when the subject order took effect for purposes
of compliance, and whether the rehabilitation court can reverse or invalidate acts that
are inconsistent with its stay order and are made after its issuance but prior to its
publication.

Applying the provisions of the present Rehabilitation Rules, the
rehabilitation court properly invalidated ABC's action.
The rehabilitation petition was filed by EPCIB under A.M. No. 00-8-10-SC dated 21
November 2000, or the 2000 Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules).
On 27 August 2013, however, the Court enacted A.M. No. 12-12-11-SC, or the
Financial Rehabilitation Rules of Procedure (Rehabilitation Rules), which amended and
revised the Interim Rules and the subsequent 2008 Rules of Procedure on Corporate
Rehabilitation (2008 Rules), in order to incorporate the significant changes brought
about by Republic Act No. 10142 (R.A. No. 10142), otherwise known as the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA).8
The Rehabilitation Rules provides that the court shall issue a commencement order
once it finds the petition for rehabilitation sufficient in form and substance. 9 This
commencement order primarily contains: a declaration that the debtor is under
rehabilitation, the appointment of a rehabilitation receiver, a directive for all creditors to
file their verified notices of claim, and an order staying claims against the debtor. 10 The
rehabilitation proceedings shall be deemed to have commenced from the date of filing
of the petition,11 which is also termed the commencement date.
Under the same Rules, the effects of such commencement order shall retroact to the
date that the petition was filed, and renders void any attempt to collect on or enforce a
claim against the debtor or to set off any debt by the debtor's creditors, after the
commencement date, to wit:
SEC. 9. EFFECTS OF THE COMMENCEMENT ORDER. - The effects of the court's
issuance of a Commencement Order shall retroact to the date of the filing of the petition
and, in addition to the effects of a Stay or Suspension Order described in the foregoing
section, shall
xxx
(B) prohibit or otherwise serve as the legal basis for rendering null and void the
results of any extrajudicial activity or process to seize property, sell encumbered
property, or otherwise attempt to collect on or enforce a claim against the debtor
after the commencement date unless otherwise allowed under these Rules,
subject to the provisions of Section 49 of this Rule;
(C) serve as legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor's
creditors; (emphasis supplied)
xxx
The order issued by the RTC on 12 September 2006, which effectively initiated
rehabilitation proceedings and included a suspension of all claims against SCP, is akin
to the commencement order under the Rehabilitation Rules.
Clearly, therefore, if the Rehabilitation Rules were to be applied, the directive of the
rehabilitation court restoring SCP's current account and crediting back the offset
amount is valid and proper, since the offsetting was made on 15 September 2006, after
the commencement date on 11 September 2006, when the petition for rehabilitation
was filed.
The question thus arises: May the Rehabilitation Rules be applied to resolve the
present petition, when the subject petition for rehabilitation was filed under the Interim
Rules.
The Court rules in the affirmative.
Section 2, Rule 1 of the Rehabilitation Rules governs rehabilitation cases already
pending, except when its application would not prove feasible or would work injustice,
to wit:
SEC. 2. SCOPE. - These Rules shall apply to petitions for rehabilitation of corporations,
partnerships, and sole proprietorships, filed pursuant to Republic Act No. 10142,
otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010.
These Rules shall similarly govern all further proceedings in suspension of
payments and rehabilitation cases already pending, except to the extent that, in
the opinion of the court, its application would not be feasible or would work
injustice, in which event the procedures originally applicable shall continue to
govern. (emphasis supplied)
The above provision is consistent with the mandate under R.A. No. 10142, viz:
SEC. 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken
effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in the opinion of the
court their application would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and regulations shall apply.
(emphasis supplied)
The soundness of upholding the retroactive effect of a commencement order is easily
discernible.
In Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation,12 the Court said that rehabilitation proceedings seek to give insolvent
debtors the opportunity to reorganize their affairs and to efficiently and equitably
distribute its remaining assets, viz:
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative
purposes. On the one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtor's remaining assets to its creditors; and on the other,
to provide debtors with a "fresh start" by relieving them of the weight of their outstanding
debts and permitting them to reorganize their affairs. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings. (emphasis supplied)
The filing of a petition for the rehabilitation of a debtor, when the court finds that it is
sufficient in form and substance, is both (1) an acknowledgment that the debtor is
presently financially distressed; and (2) an attempt to conserve and administer its
assets in the hope that it will eventually return to its former state of successful financial
operation and liquidity.13 The inherent purpose of rehabilitation is to find ways and
means to minimize the expenses of the distressed corporation during the rehabilitation
period by providing the best possible framework for the corporation to gradually regain
or achieve a sustainable operating form.14
Certainly, when a petition for rehabilitation is filed and subsequently granted by the
court, its purpose will be defeated if the debtors are still allowed to arbitrarily dispose of
their property and pay their liabilities, outside of the ordinary course of business and
what is allowed by the court, after the filing of the said petition. Such a scenario does
not promote an environment where the debtor could regain its operational footing,
contrary to the dictates of rehabilitation.
The petition itself, when granted by the court, is already a recognition of the debtor's
distressed financial status not only at the time the order is issued, but also at the time
the petition is filed. It is, therefore, more consistent with the objectives of rehabilitation
to recognize that the effects of an order commencing rehabilitation proceedings and
staying claims against the debtor should retroact to the date the petition is filed.
Accordingly, the Court finds that application of the Rehabilitation Rules to the case at
bar is proper, insofar as it clarifies the effect of an order staying claims against a debtor
sought to be rehabilitated.
Such application promotes a just and sound resolution to the present controversy,
bearing in mind the inherent purpose of rehabilitation proceedings. It is also feasible,
considering the subject resolution was within the Rehabilitation Court's powers, wielded
for the same purpose identified in both the Interim Rules and the Rehabilitation Rules
which is to promote a timely, fair, transparent, effective, and efficient rehabilitation of
debtors.15
Even the Interim Rules provides for the immediate effectivity of a stay order.
Even if the retroactive effect under the Rehabilitation Rules is inapplicable to the case
at bar, the Interim Rules expressly provides that the stay order is effective upon its
issuance, viz:
Sec. 11. Period of the Stay Order. - The stay order shall be effective from the date of
its issuance until the dismissal of the petition or the termination of the
rehabilitation proceedings. (emphasis supplied)
xxx
The foregoing provision finds support in Section 5, Rule 3, of the Interim Rules, to wit:
Sec. 5. Executory Nature of Orders. - Any order issued by the court under these
Rules is immediately executory. A petition for review or an appeal therefrom shall
not stay the execution of the order unless restrained or enjoined by the appellate court.
The review of any order or decision of the court or an appeal therefrom shall be in
accordance with the Rules of Court: Provided, however, that the reliefs ordered by the
trial or appellate courts shall take into account the need for resolution of proceedings
in a just, equitable, and speedy manner. (emphasis supplied)
This Court quotes with approval the CA's disquisition on this matter:
From the above provisions, a stay order issued by the court in a corporate rehabilitation
proceeding is effective from the date of its issuance until the dismissal of the petition or
the termination of the rehabilitation proceedings. In fact, it is immediately executory.
In the case at bar, there is no doubt that the rehabilitation court correctly held that the
appellant is bound by the September 12, 2006 Stay Order as of the date of its issuance,
the same being immediately executory and effective without any further act, event, or
condition being necessary to compel compliance therewith as expressly provided in
Sec. 11, Rule IV and Sec. 5, Rule III of the Interim Rules of Procedure on Corporate
Rehabilitation.
xxx
It should be stressed that the Interim Rules was enacted to provide for a summary and
non-adversarial rehabilitation proceedings. This is in consonance with the commercial
nature of a rehabilitation case, which is aimed to be resolved expeditiously for the
benefit of all the parties concerned and the economy in general.
It is true that under the Interim Rules, similar to the Rehabilitation Rules, publication of
the notice of the commencement of the proceedings is necessary to acquire jurisdiction
over all persons affected, viz:
Section 1. Nature of Proceedings. - Any proceeding initiated under these Rules shall
be considered in rem. Jurisdiction over all those affected by the proceedings shall be
considered as acquired upon publication of the notice of the commencement of the
proceedings in any newspaper of general circulation in the Philippines in the manner
prescribed by these Rules.
xxx
The question posed herein is whether the immediate effectivity of the stay order is
inconsistent with the publication requirement under the Rules, such that the
rehabilitation court cannot invalidate acts made after its issuance but prior to its
publication. The Court rules in the negative.
Taking into consideration the laudable objectives of rehabilitation proceedings, the
immediate effectivity of the stay order means that the RTC, through an order
commencing rehabilitation and staying claims against the debtor, acknowledges that
the debtor requires rehabilitation immediately and therefore it can not only prohibit but
also nullify acts made after its effectivity, when such acts are violative of the stay order,
to prevent any irreparable detriment to the debtor's successful restoration.
The foregoing is validated by the Interim Rules, where the court can declare void any
transaction made in violation of the stay order, viz:
Sec. 8. Voidability of Illegal Transfers and Preferences. - Upon motion or motu
proprio, the court may declare void any transfer of property or any other
conveyance, sale, payment, or agreement made in violation of its stay order or
in violation of these Rules. (emphasis supplied)
The publication requirement only means that all affected persons must, to satisfy the
requirements of due process, be notified that as of a particular date, the debtor in
question requires rehabilitation and should temporarily be exempt from paying its
obligations, unless allowed by the court. Once due notice is made, the rehabilitation
court may nullify actions inconsistent with the stay order but which may have been
taken prior to publication, precisely because prior to publication, creditors may not yet
be aware that they are to desist from pursuing claims against the insolvent debtor.
Again, the immediate effectivity of the stay order can be traced to the purpose of
rehabilitation: once the necessity of rehabilitating the debtor is recognized, through a
petition duly granted, it is imperative that the necessary steps to preserve its assets are
taken at the earliest possible time.
It is thus apparent that the RTC properly invalidated petitioner's action made on 15
September 2006, after the subject order was issued.
There was no impairment of contract or deprivation of due process.
According to ABC, the subject resolution constituted an impairment of its contract with
SCP because under the TR it executed in ABC's favor, ABC had the right to charge
SCP's account in case of nonpayment of any indebtedness. ABC also claims lack of
due process because the rehabilitation court directed ABC to restore SCP's account
even when the offsetting was made prior to publication of the subject order, when ABC
was not yet deemed notified of the order.
Anent the alleged impairment of contract, basic is the principle that the law is deemed
written into every contract, such that while a contract is the law between the parties,
the provisions of positive law which regulate contracts shall limit and govern their
relations.16 At the time the Trust Receipt Agreement was entered into by ABC and SCP,
the law expressly allowed corporations to be declared in a state of suspension of
payments under specific instances.17
Consequently, said law and its implementing rules are deemed incorporated in the
Trust Receipt Agreement, thereby limiting ABC's right to enforce its claim against SCP
once a stay or suspension order is issued. Clearly, the principle on inviolability of
contracts was not violated.
It must also be noted that the subject order did not eliminate or reduce SCP's
obligations to ABC, but merely suspended its enforcement while rehabilitation is being
undertaken. In fact, one of the purposes of rehabilitation is to ensure the efficient and
equitable distribution of the insolvent debtor's remaining assets to its creditors.18
In Golden Merchandising Corporation v. Equitable PCI Bank,19 which involved the
question of whether the shorter redemption period, provided under R.A. No. 8791 and
applied to a real mortgage contract executed prior to the enactment of said law,
constitutes a violation against the constitutional proscription on impairment of contracts,
the Court ruled that there was no impairment because the provision in question did not
divest juridical persons of their right to redeem but merely modified the time for the
exercise of such right.
Similarly, ABC was not deprived of its right to enforce its claim against SCP. The
creditor's right to enforce his claim despite the issuance of a stay order is even validated
by Section 8 of the Rehabilitation Rules, to wit:
SEC. 8. COMMENCEMENT OF PROCEEDINGS AND ISSUANCE OF
COMMENCEMENT ORDER. - The rehabilitation proceedings shall be deemed to have
commenced from the date of filing of the petition.
xxx
The issuance of a stay order does not affect the right to commence actions or
proceedings in order to preserve ad cautelam a claim against the debtor and to
toll the running of the prescriptive period to file the claim. For this purpose, the
plaintiff may file the appropriate court action or proceedings by paying the amount of
One Hundred Thousand Pesos (P100,000.00) or one-tenth (1/10) of the prescribed
filing fee, whichever is lower. The payment of the balance of the filing fee shall be a
jurisdictional requirement for the reinstatement or revival of the case. (emphasis
supplied)
It is also clear from the previous discussion that ABC was not deprived of due process
when the RTC issued the subject resolution.
The essence of procedural due process is one which hears before it condemns, which
proceeds upon inquiry and renders judgment only upon trial. It contemplates notice and
opportunity to be heard before judgment is rendered affecting one's person or
property.20
Rehabilitation proceedings are considered in rem.21In rem actions are against the thing
itself and they are binding upon the whole world, 22 unlike in personam actions, which
are against a person on the basis of his personal liability. 23 "Against the thing" means
that the resolution of the case affects the direct or indirect interests of others and
assumes that those interests attach to the thing which is the subject matter of the
litigation.24
The Court has consistently held that in actions in personam, jurisdiction over the parties
is required since they seek to impose personal liability. On the other hand, courts need
not acquire jurisdiction over the person of the defendant in actions in rem because they
are not directed against a specific person. The court need only acquire jurisdiction over
the res.25 Nonetheless, some form of notice to all affected parties is required to satisfy
the requirements of due process. Under both the Rehabilitation Rules and the Interim
Rules, publication of the notice of the commencement of rehabilitation proceedings is
the operative act which vests the court with jurisdiction over all affected parties. As
discussed earlier, once jurisdiction is acquired, the court can subject all those affected
to orders consistent with the rehabilitation of the insolvent debtor, including the reversal
of any transfer, payment, or sale made after the filing of the petition.
It is not disputed that the 12 September 2006 Order of the rehabilitation court was duly
published on 16 September 2006; that said order contained a directive for all creditors
to file their verified comment on the petition within a stated period; and that ABC filed
its verified comment on 17 October 2006.
It is therefore evident that petitioner was notified of the rehabilitation proceedings and
given an opportunity to be heard, as in fact it filed a comment thereon, thereby satisfying
due process requirements. Moreover, as previously discussed, there was no undue
deprivation of property because SCP's obligation to ABC remains.
WHEREFORE, the petition is DENIED. The 22 July 2008 Decision and 12 April 2010
Resolution of the Court of Appeals in CA-G.R. SP No. 97206 are AFFIRMED.
SO ORDERED.
G.R. No. 185024
JOSELITO HERNAND M. BUSTOS, Petitioners
vs.
MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the
REGISTER OF DEEDS OF MARIKINA CITY, Respondents
DECISION
SERENO, J.:
Before this Court is a Rule 45 Petition 1 assailing the Decision and the Resolution2 of
the Court of Appeals (CA). The CA did not find any grave abuse of discretion on the
part of the Regional Trial Court, Imus, Cavite, Branch 21 (RTC). The RTC had issued
Orders3 refusing to exclude the subject property in the Stay Order pertaining to assets
under rehabilitation of respondent Millians Shoe, Inc. (MSI).
FACTS OF THE CASE
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by
Transfer Certificate of Title (TCT) No. N-126668.4 On 6 January 2004, the City
Government of Marikina levied the prope1iy for nonpayment of real estate taxes. The
Notice of Levy was annotated on the title on 8 January 2004. On 14 October 2004, the
City Treasurer of Marikina auctioned off the property, with petitioner Joselito Hernand
M. Bustos emerging 'as the winning bidder.
Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the
Regional Trial Court, Marikina City, Branch 273, rendered a final and executory
Decision ordering the cancellation of the previous title and the issuance of a new one
under the name of petitioner. 5
Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February
2005.6 These markings indicated that SEC Corp. Case No. 036-04, which was filed
before the RTC and involved the rehabilitation proceedings for MSI, covered the subject
property and included it in the Stay Order issued by the RTC dated 25 October 2004. 7
On 26 September 2006, petitioner moved for the exclusion of the subject property from
the Stay Order.8 He claimed that the lot belonged to Spouses Cruz who were mere
stockholders and officers of MSL He further argued that since he had won the bidding
of the property on 14 October 2004, or before the annotation of the title on 9 February
2005, the auctioned property could no longer be part of the Stay Order.
The RTC denied the entreaty of petitioner. It ruled that because the period of
redemption up to 15 October 2005 had not yet lapsed at the time of the issuance of the
Stay Order on 25 October 2004, the ownership thereof had not yet been transferred to
petitioner.9
Petitioner moved for reconsideration, 10 but to no avail. 11 He then filed an action
for certiorari before the CA. He asserted that the Stay Order undermined the taxing
powers of the local government unit. He also reiterated his arguments that Spouses
Cruz owned the property, and that the lot had already been auctioned to him.
In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the
suspension orders undermined the power to tax. As regards petitioner's main
contention, the CA ruled as follows:
In the case at bar, the delinquent tax payers were the Cruz Spouses who were the
registered owners of the said parcel of land at the time of the delinquency sale. The
sale was held on October 14, 2004 and the Cruz
Spouses had until October 15, 2005 within which to redeem the parcel of land. The stay
order was issued on October 25, 2004 and inscribed at the back of the title on February
9, 2005, which is within the redemption period. The Cruz Spouses were still the owners
of the land at the time of the issuance of the stay order. The said parcel of land which
secured several mortgage liens for the account of MSI remains to be an asset of the
Cruz Spouses, who are the stockholders and/or officers of MSI, a close corporation.
Incidentally, as an exception to the general rule, in a close corporation, the stockholders
and/or officers usually manage the business of the corporation and are subject to all
liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus,
the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt
and obligations.
Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling and
even held that his prayer to exclude the property was time-barred by the 10-day
reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the
Interim Rules of Procedure on Corporate Rehabilitation
Before this Court, petitioner maintains three points: (1) the Spouses Cruz are not liable
for the debts of MSI; (2) the Stay Order undermines the taxing power of Marikina City;
and (3) the time bar rule does not apply to him, because he is not a creditor of MSI. 12
In their Comment, 13 respondents do not contest that Spouses Cruz own the subject
property. Rather, respondents assert that as stockholders and officers of a close
corporation, they are personally liable for its debts and obligations. Furthermore, they
argue that since the Rehabilitation Plan of MSI has been approved, petitioner can no
longer assail the same.
ISSUE OF THE CASE
The controlling issue in this case is whether the CA correctly considered the properties
of Spouses Cruz answerable for the obligations of MSI.
If the answer is in the affirmative, then the courts a quo correctly ruled that the Stay
Order involving the assets of MSI included the property covered by TCT No. N-126668.
Petitioner would also be considered a creditor of MSI who must timely file an opposition
to the proposed rehabilitation plan of the corporation.
RULING OF THE COURT
We set aside rulings of the CA for lack of basis.
In finding the subject property answerable for the obligations of MSI, the CA
characterized respondent spouses as stockholders of a close corporation who, as such,
are liable for its debts. This conclusion is baseless.
To be considered a close corporation, an entity must abide by the requirements laid out
in Section 96 of the Corporation Code, which reads:
Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning
of this Code, is one whose articles of incorporation provide that: (1) All the
corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20); (2)
all the issued stock of all classes shall be subject to one or more specified restrictions
on transfer permitted by this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class. Notwithstanding
the foregoing, a corporation shall not be deemed a close corporation when at least two-
thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.x x x.
(Emphasis supplied)
In San Juan Structural and Steel Fabricators. Inc. v. Court ol Appeals,14 this Court held
that a narrow distribution of ownership does not, by itself, make a close corporation.
Courts must look into the articles of incorporation to find provisions expressly stating
that (l) the number of stockholders shall not exceed 20; or (2) a preemption of shares
is restricted in favor of any stockholder or of the corporation; or (3) the listing of the
corporate stocks in any stock exchange or making a public offering of those stocks is
prohibited.
Here, neither the CA nor the R TC showed its basis for finding that MSI is a close
corporation. The courts a quo did not at all refer to the Articles of Incorporation of MSI.
The Petition submitted by respondent in the rehabilitation proceedings before the RTC
did not even include those Articles of Incorporation among its attachments. 15
In effect, the CA and the RTC deemed MSI a close corporation based on the allegation
of Spouses Cruz that it was so. However, mere allegation is not evidence and is not
equivalent to proof. 16 For this reason alone, the CA rulings should be set aside.
Furthermore, we find that the CA seriously erred in portraying the import of Section 97
of the Corporation Code. Citing that provision, the CA concluded that "in a close
corporation, the stockholders and/or officers usually manage the business of the
corporation and are subject to all liabilities of directors, i.e. personally liable for
corporate debts and obligations." 17
However, Section 97 of the Corporation Code only specifies that "the stockholders of Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs
the corporation shall be subject to all liabilities of directors." Nowhere in that provision creditors of the debtor to file an opposition to petitions for rehabilitation within 10 days
do we find any inference that stockholders of a close corporation are automatically before the initial hearing of rehabilitation proceedings. Since petitioner does not hold
liable for corporate debts and obligations. any claim over the properties owned by MSI, the time-bar rule does not apply to him.

Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly WHEREFORE, the Petition for review on certiorari filed by petitioner Joselito Hernand
provides for personal liability of stockholders of close corporation, viz: M. Bustos is GRANTED. The Decision dated 12 June 2008 and Resolution dated 27
October 2008 of the Court of Appeals in C.A.-G.R. SP. No. 100298
Sec. 100. Agreements by stockholders. - are REVERSED and SET ASIDE.

xxxx SO ORDERED.

5. To the extent that the stockholders are actively engaged in the management or
operation of the business and affairs of a close corporation, the stockholders shall be
held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance. (Emphasis supplied)

As can be read in that provision, several requisites must be present for its applicability.
None of these were alleged in the case of Spouses Cruz. Neither did the RTC or the
CA explain the factual circumstances for this Court to discuss the personally liability of
respondents to their creditors because of corporate torts." 18

We thus apply the general doctrine of separate juridical personality, which provides that
a corporation has a legal personality separate and distinct from that of people
comprising it. 19 By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder.20 Thus,
being an officer or a stockholder of a corporation does not make one's property the
property also of the corporation.21

Situs Development Corp. v. Asiatrust Bank22 is analogous to the case at

bar.1âwphi1 We held therein that the parcels of land mortgaged to creditor banks were
owned not by the corporation, but by the spouses who were its stockholders. Applying
the doctrine of separate juridical personality, we ruled that the parcels of land of the
spouses could not be considered part of the corporate assets that could be subjected
to rehabilitation proceedings.

In rehabilitation proceedings, claims of creditors are limited to demands of whatever

nature or character against a debtor or its property, whether for money or
otherwise.23 In several cases,24 we have already held that stay orders should only cover
those claims directed against corporations or their properties, against their guarantors,
or their sureties who are not solidarily liable with them, to the exclusion of
accommodation mortgagors.25 To repeat, properties merely owned by stockholders
cannot be included in the inventory of assets of a corporation under rehabilitation.

Given that the true owner the subject property is not the corporation, petitioner cannot
be considered a creditor of MSI but a holder of a claim against respondent spouses. 26
G.R. No. 205469, March 25, 2015
BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL MEDICAL CENTER,
INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated
August 30, 2012 and the Resolution3 dated January 18, 2013 of the Court of Appeals
(CA) in CA-G.R. SP No. 121004 which affirmed the approval of the Rehabilitation Plan
of respondent St. Michael Medical Center, Inc. (SMMCI) by the Regional Trial Court of
Imus, Cavite, Branch 21 (RTC) through its Order4 dated August 4, 2011 in SEC Case
No. 086-10.
The Facts
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors of
St. Michael Diagnostic and Skin Care Laboratory Services and Hospital (St. Michael
Hospital), a 5-storey secondary level hospital built on their property located in Molino
2, Bacoor, Cavite. With a vision to upgrade St. Michael Hospital into a modern, well-
equipped and full service tertiary 11-storey hospital, Sps. Rodil purchased two (2)
parcels of land adjoining their existing property and, on May 22, 2003, incorporated
SMMCI, with which entity they planned to eventually consolidate St. Michael Hospital’s
operations. SMMCI had an initial capital of P2,000,000.00 which was later increased to
P53,500,000.00, 94.49% of which outstanding capital stock, or P50,553,000.00, was
subscribed and paid by Sps. Rodil.5cralawred
In May 2004, construction of a new hospital building on the adjoining properties
commenced, with Sps. Rodil contributing personal funds as initial capital for the project
which was estimated to cost at least P100,000,000.00.6 To finance the costs of
construction, SMMCI applied for a loan with petitioner BPI Family Savings Bank, Inc.
(BPI Family) which gave a credit line of up to P35,000,000.00, 7 secured by a Real
Estate Mortgage8 (mortgage) over three (3) parcels of land9belonging to Sps. Rodil, on
a portion of which stands the hospital building being constructed. SMMCI was able to
draw the aggregate amount of P23,700,000.00,10 with interest at the rate of 10.25% per
annum (p.a.) and a late payment charge of 3% per month accruing on the overdue
amount, for which Sps. Rodil, who agreed to be co-borrowers on the loan, executed
and signed a Promissory Note.11cralawred
In the meantime, after suffering financial losses due to problems with the first building
contractor,12 Sps. Rodil temporarily deferred the original construction plans for the 11-
storey hospital building and, instead, engaged the services of another contractor for the
completion of the remaining structural works of the unfinished building up to the 5th
floor. In this regard, they spent an additional P25,000,000.00, or a total of
P55,000,000.00 for the construction. The lack of funds for the finishing works of the 3rd,
4th and 5th floors, however, kept the new building from becoming completely functional
and, in turn, hampered the plans for the physical transfer of St. Michael Hospital’s
operations to SMMCI. Nevertheless, using hospital-generated revenues, Sps. Rodil
were still able to purchase new equipment and machinery for St. Michael Hospital
valued in excess of P20,000,000.00.13cralawred
Although the finishing works were later resumed and some of the hospital operations
were eventually transferred to the completed first two floors of the new building, as of
May 2006, SMMCI was still neither operational nor earning revenues. Hence, it was
only able to pay the interest on its BPI Family loan, or the amount of P3,000,000.00
over a two-year period, from the income of St. Michael Hospital. 14cralawred
On September 25, 2009, BPI Family demanded immediate payment of the entire loan
obligation15 and, soon after, filed a petition for extrajudicial foreclosure16 of the real
properties covered by the mortgage. The auction sale was scheduled on December 11,
2009, which was postponed to February 15, 2010 with the conformity of BPI
Family.17cralawred
On August 11, 2010, SMMCI filed a Petition for Corporate
Rehabilitation18 (Rehabilitation Petition), docketed as SEC Case No. 086-10, before the
RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of
meeting its obligation to BPI Family, its purported sole creditor.19cralawred
In the said petition, SMMCI claimed that it had to defer the construction of the projected
11-storey hospital building due to the problems it had with its first contractor as well as
the rise of the cost of construction materials. As of date, only two (2) floors of the new
building are functional, in which some of the operations of St. Michael had already been
transferred.20cralawred
Also, it was alleged that more than P66,000,000.00 had been spent for the construction
of the existing structure (in excess of its proportionate share of the original estimated
cost for the entire project), said amount having come from the personal funds of Sps.
Rodil and/or income generated by St. Michael Hospital, aside from the drawings from
the credit line with BPI Family. At the same time, Sps. Rodil continued to shoulder the
costs of equipment and machinery amounting to P20,000,000.00, in order to build up
the hospital’s medical capabilities. However, since SMMCI was neither operational nor
earning revenues, it could only pay interest on the BPI Family loan, using St. Michael
Hospital’s income, over a two-year period.21cralawred
Further, it was averred that while St. Michael Hospital – whose operations were to be
eventually absorbed by SMMCI – was operating profitably, it was saddled with the
burden of paying the loan obligation of SMMCI and Sps. Rodil to BPI Family, which it
cannot service together with its current obligations to other persons and/or entities. The
situation became even more difficult when the bank called the entire loan obligation
which, as of November 16, 2009, amounted to P52,784,589.34 (net of unapplied
payment), consisting of: (a) the principal of P23,700,000.00; (b) accrued interest of
P7,048,152.74; and (c) late payment charges amounting to P23,510,400.00. While
several persons approached Sps. Rodil signifying their interest to invest in the
corporation, they needed enough time to complete their audit and due diligence of the
company,22 hence, the Rehabilitation Petition.
In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI Family (a) to defer
foreclosing on the mortgage and (b) to agree to a moratorium of at least two (2) years
during which SMMCI – either through St. Michael Hospital or its successor – will retire
all other obligations. After which, SMMCI can then start servicing its loan obligation to
the bank under a mutually acceptable restructuring agreement.24 SMMCI declared that
it intends to conclude pending negotiations for investments offered by a group of
medical doctors whose capital infusion shall be used (a) to complete the finishing
requirements for the 3rd and 5th floors of the new building; (b) to renovate the old 5-
storey building where St. Michael Hospital operates; and (c) to pay, in whole or in part,
the bank loan with the view of finally integrating St. Michael Hospital with
SMMCI.25cralawred
The Proceedings Before the RTC
Finding the Rehabilitation Petition to be sufficient in form and substance, the RTC
issued a Stay Order26 on August 16, 2010. After the initial hearing on October 5, 2010,
and the filing of comments to the said petition, 27 the same was referred to the court-
appointed Rehabilitation Receiver, Dr. Uriel S. Halum (Dr. Halum), who submitted in
due time his Report and Recommendations28 (Receiver’s Report) to the RTC on
February 17, 2011.29cralawred
In the said report, Dr. Halum gave credence to the feasibility study conducted by Mrs.
Nenita Alibangbang (Mrs. Alibangbang), a certified public accountant and Dean of the
College of Accountancy at the University of Perpetual Help Dalta, who was
commissioned in 2008 to do a study on the viability of the project, finding that the same
was feasible given that St. Michael Hospital, whose operations SMMCI will eventually
absorb, registered outstanding revenue performance for the last seven years of its
operation with an average growth rate of 42.21% annually. 30 Accordingly, Dr. Halum
found that SMMCI may be rehabilitated because it is a viable option but, nevertheless,
opined that it will take more than what it had proposed to successfully bring the
company back to good financial health considering the finding that its obligation actually
extends beyond the bank, and also includes accounts payable due to suppliers and
informal lenders.31 Thus, he made the following recommendations:
1. The two-year moratorium period to pay the bank is not enough. The
Court should seriously consider extending it by another three years
or a total of five (5) years, at least. The bank, whose loan is secured
by mortgages on three prime parcels of land with improvements
should discuss restructuring the loan with the creditors with the end
in view of stretching the term and allowing for more flexible rate.
2. Obligations to other creditors such as the suppliers and lenders can
be serviced at once. Given the performance of the hospital, the
undersigned reasonably believes that these obligations can be
settled in next three (3) years. These accounts can be paid
proportionately provided that [SMMCI] should be allowed to re-
structure these accounts to allow for longer and more convenient
payment terms.
3. [SMMCI] should be allowed to spend for the improvement of the
building but not necessarily continuing with the planned 11-storey
building. It should make do with what it has but should be permitted
to spend reasonable part of the hospital’s revenues to improve the
facilities. For instance, we recommend that the fifth floor of the
building should be finished to provide for an intensive care unit or
ICU with equipments (sic) and required facilities. [SMMCI] should
also consider spending (sic) an elevator to make access to and from
the higher floors convenient to patients, doctors, nurses and guests.
Incidentally, these improvements should be programmed for the next
two to three years. Given the budgetary constraints of the hospital,
doing all these improvements all at once would be impossible.
4. Finally, [SMMCI] should provide for details on its statements
regarding the prospective investors. It (sic) true, or in case it
happens, then this fresh capital should be used partly to pay the bank
and the rest to improve the hospital to make it more competitive with
the nearby medical service providers.32cralawred
On May 26, 2011, the RTC issued an order requiring the counsels of the
creditors/oppositors to file their comments to the Receiver’s Report within ten (10) days
from notice, but only counsel for South East Star Enterprises complied. 33cralawred
The RTC Ruling
In an Order34dated August 4, 2011, the RTC approved the Rehabilitation Plan with the
modifications recommended by the Rehabilitation Receiver and thus, ordered: (a) a
five-year moratorium on SMMCI’s bank loan; (b) a restructuring and payment of
obligations to other creditors such as suppliers and lenders; (c) a programmed
spending of a reasonable part of the hospital’s revenues for the finishing of the 5th floor
and the improvement of hospital facilities in the next two or three years; and (d) use of
fresh capital from prospective investors to partly pay SMMCI’s bank loan and improve
St. Michael Hospital’s competitiveness.35cralawred
It cited the following considerations which had justified its approval: (1) the
Rehabilitation Plan is endorsed by the Rehabilitation Receiver subject to certain
recommendations; (2) the plan ensures preservation of assets and orderly payment of
debts; (3) the plan provides for recovery rates on operating mode as opposed to
liquidation values; (4) it contains details for a business plan which will restore
profitability and solvency of petitioner; (5) the projected cash flow can support the
continuous operation of the debtor as a going concern; (6) the plan did not ask for a
waiver of the principal; (7) the plan preserves the security of the secured creditor; (8)
the plan has provisions to ensure that future income will inure to the benefit of the
creditors; and (9) the rehabilitation of the debtor benefits its employees, creditors,
stockholders and, in a large sense, the general public as it will generate employment
and is a potential source of revenue for the government.36cralawred
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that the
approval of the Rehabilitation Plan violated its rights as an unpaid creditor/mortgagee
and that the same was submitted without prior consultation with creditors.37cralawred
The CA Ruling
In a Decision38 dated August 30, 2012, the CA affirmed the RTC’s approval of the
Rehabilitation Plan.39cralawred
It found that: (a) the rehabilitation of SMMCI is feasible considering the outstanding
revenue performance of St. Michael Hospital, which it shall absorb, showing its gross
profit exceeding its operating expenses and the large probability of increased
profitability due to the favorable economic conditions of the locality; (b) the approval of
the Rehabilitation Plan did not amount to an impairment of contract since there was no
directive for the release of the mortgaged properties to which BPI Family is entitled to
as a secured creditor but only a suspension of the provisions of the loan agreements;
(c) it is not mandatory for the validity of the Rehabilitation Plan that the Rehabilitation
Receiver should consult with the creditors; and (d) the approval of the Rehabilitation
Plan was not made arbitrarily since it was done only after a review of the pleadings filed
and the report submitted by the Rehabilitation Receiver, and its approval was anchored
on valid considerations.40cralawred
Dissatisfied, BPI Family moved for reconsideration which was denied in a
Resolution41 dated January 18, 2013, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA correctly affirmed SMMCI’s
Rehabilitation Plan as approved by the RTC.
The Court’s Ruling
The petition is meritorious.
I.
Restoration is the central idea behind the remedy of corporate rehabilitation. In common
parlance, to “restore” means “to bring back to or put back into a former or original
state.”42 Case law explains that corporate rehabilitation contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to
enable the company to gain a new lease on life and allow its creditors to be paid
their claims out of its earnings.43Consistent therewith is the term’s statutory definition
under Republic Act No. 10142,44 otherwise known as the “Financial Rehabilitation and
Insolvency Act of 2010” (FRIA), which provides:
Section 4. Definition of Terms. – As used in this Act, the term:
x x x x
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated.
x x x x (Emphasis supplied)
In other words, rehabilitation assumes that the corporation has been operational
but for some reasons like economic crisis or mismanagement had become
distressed or insolvent, i.e., that it is generally unable to pay its debts as they fall due
in the ordinary course of business or has liability that are greater than its assets.45 Thus,
the basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation, 46 all with a view of
effectively restoring it to a state of solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.
In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a
position of successful operation and solvency at the time the Rehabilitation Petition was
filed on August 11, 2010. While it had indeed “commenced business” through the
preparatory act of opening a credit line with BPI Family to finance the construction of a
new hospital building for its future operations, SMMCI itself admits that it has not
formally operated nor earned any income since its incorporation. This simply means
that there exists no viable business concern to be restored. Perforce, the remedy of
corporate rehabilitation is improper, thus rendering the dispositions of the courts a
quo infirm.
II.
In fact, for the same reasons, the Court observes that SMMCI could not have even
complied with the form and substance of a proper rehabilitation petition, and submit its
accompanying documents, among others, the required financial statements of a going
concern. Section 2, Rule 4 of the 2008 Rules of Procedure on Corporate
Rehabilitation47 (Rules), which were in force at the time SMMCI’s rehabilitation petition
was filed on August 11, 2010, pertinently provides:
SEC. 2. Contents of Petition. -
x x x x
(b) The petition shall be accompanied by the following documents:
(1) An audited financial statement of the debtor at the end of its last fiscal year;
(2) Interim financial statements as of the end of the month prior to the filing of the
petition;
xxxx
Note that this defect is not negated by the submission of the financial documents
pertaining to St. Michael Hospital, which is a separate and distinct entity from SMMCI.
While the CA gave considerable weight to St. Michael Hospital’s supposed
“profitability,” as explicated in its own financial statements, as well as the feasibility
study conducted by Mrs. Alibangbang,48 in affirming the RTC, it has unwittingly lost
sight of the essential fact that SMMCI stands as the sole petitioning debtor in this case;
as such, its rehabilitation should have been primarily examined from the lens of its own
financial history. While SMMCI claims that it would absorb St. Michael Hospital’s
operations, there was dearth of evidence to show that a merger was already agreed
upon between them. Accordingly, St. Michael Hospital’s financials cannot be utilized as
basis to determine the feasibility of SMMCI’s rehabilitation.
Note further that while it appears that Sps. Rodil effectively owned and exercised
control over the two entities, such fact does not, by and of itself, warrant their singular
treatment for to do so would only confuse the objective of the proceedings which is to
ascertain whether the petitioning corporation, and not any other entity related thereto
(except if joining as a co-petitioning debtor), may be rehabilitated. Neither is the
proceeding the proper forum to pierce the corporate fictions of both entities for it
involves no creditor claiming to be a victim of fraud, an essential requisite for the
application of such doctrine.49cralawred
In fine, the petition should not have been given due course, nor should a Stay Order
have been issued.
III.
To compound its error, the CA even disregarded the fact that SMMCI’s Rehabilitation
Plan, an indispensable requisite in corporate rehabilitation proceedings, failed to
comply with the fundamental requisites outlined in Section 18, Rule 3 of the Rules,
particularly, that of a material financial commitment to support the rehabilitation and an
accompanying liquidation analysis, all of the petitioning debtor:
SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the
terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but not
limited, to the non-impairment of their security liens or interests; (c) the material
financial commitments to support the rehabilitation plan; (d) the means for the
execution of the rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale exchange or any disposition of assets
or of the interest of shareholders, partners or members; (e) a liquidation analysis
setting out for each creditor that the present value of payments it would receive
under the plan is more than that which it would receive if the assets of the debtor
were sold by a liquidator within a six-month period from the estimated date of
filing of the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation plan.
(Emphases supplied)
A. Lack of Material Financial Commitment
to Support the Rehabilitation Plan.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith of the distressed corporation in financing the
proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during
the period of rehabilitation.50cralawred
In this case, aside from the harped on merger of St. Michael Hospital with SMMCI, the
only proposed source of revenue the Rehabilitation Plan suggests is the capital which
would come from SMMCI’s potential investors, which negotiations are merely pending.
Evidently, both propositions commonly border on the speculative and, hence, hardly
fit the description of a material financial commitment which would inspire confidence
that the rehabilitation would turn out to be successful. In fact, the Rehabilitation
Receiver himself recognizes the ambiguity of the proposition when he recommended
that:
[T]he petitioner should provide for details on its statements regarding the prospective
investors. If true or in case it happens, then this fresh capital should be used partly to
pay the bank and the rest, to improve the hospital to make it more competitive with the
nearby medical service providers.51cralawred
In the same manner, the fact that St. Michael Hospital had previously made payments
for the benefit of SMMCI is not enough assurance that the arrangement would
prospectively apply in the event that rehabilitation is granted. As case law intimates,
nothing short of legally binding investment commitment/s from third parties is required
to qualify as a material financial commitment.52 However, no such binding investment
was presented in this case.
B. Lack of Liquidation Analysis.
SMMCI likewise failed to include any liquidation analysis in its Rehabilitation Plan. The
Court observes that as of November 16, 2009, or about 9 months prior to the filing of
the petition for rehabilitation, the loan with BPI Family had already amounted to
P52,784,589.34, with interest at 10.25% p.a. or a daily interest of about P6,655.48 and
late payment charge of 36% p.a.53However, with no SMMCI financial statement on
record, it is unclear to the Court what assets it possesses in order to determine the
values to be derived if liquidation has to be had thereby. Accordingly, this prevents the
Court from ascertaining if the petitioning debtor’s creditors can recover by way of
the present value of payments projected in the plan, more if the debtor continues
as a going concern than if it is immediately liquidated, a crucial factor in a corporate
rehabilitation case. Again, the financial records of St. Michael Hospital, being a
separate and distinct entity whose merger with SMMCI only exists in the realm of
probability, cannot be taken as a substitute to fulfill the requirement. What remains
pertinent are the financial statements of SMMCI for it solely stands as the debtor to be
rehabilitated, or liquidated in this case.
At any rate, records disclose that St. Michael Hospital’s current cash operating
position54 is just enough to meet its own maturing obligations.55 While it has substantial
total assets, a large portion thereof is comprised of fixed assets, while its current
assets56 consist mostly of inventory.57 Still, the total liquidation assets and the
estimated liquidation return to the creditors, as well as the fair market value vis-à-vis
the forced liquidation value of the fixed assets that would guide the Court in assessing
the feasibility of the Rehabilitation Plan were not shown.
C. Effect of Non-Compliance.
The failure of the Rehabilitation Plan to state any material financial commitment to
support rehabilitation, as well as to include a liquidation analysis, translates to the
conclusion that the RTC’s stated considerations for approval, i.e., that (a) the plan
provides for recovery rates on operating mode as opposed to liquidation values; (b) it
contains details for a business plan which will restore profitability and solvency on
petitioner; (c) the projected cash flow can support the continuous operation of the
debtor as a going concern; and (d) the plan has provisions to ensure that future income
will inure to the benefit of the creditors,58 are actually unsubstantiated, and hence,
insufficient to decree SMMCI’s rehabilitation. It is well to emphasize that the remedy of
rehabilitation should be denied to corporations that do not qualify under the Rules.
Neither should it be allowed to corporations whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the
absence of a sound and workable business plan; (b) baseless and unexplained
assumptions, targets, and goals; and (c) speculative capital infusion or complete lack
thereof for the execution of the business plan.59 Unfortunately, these negative
indicators have all surfaced to the fore, much to SMMCI’s chagrin.
IV.
While the Court recognizes the financial predicaments of upstart corporations under
the prevailing economic climate, it must nonetheless remain forthright in limiting the
remedy of rehabilitation only to meritorious cases. As above-mentioned, the purpose of
rehabilitation proceedings is not only to enable the company to gain a new lease on life
but also to allow creditors to be paid their claims from its earnings, when so
rehabilitated. Hence, the remedy must be accorded only after a judicious regard of all
stakeholders’ interests; it is not a one-sided tool that may be graciously invoked to
escape every position of distress.
In this case, not only has the petitioning debtor failed to show that it has formally began
its operations which would warrant restoration, but also it has failed to show compliance
with the key requirements under the Rules, the purpose of which are vital in determining
the propriety of rehabilitation. Thus, for all the reasons hereinabove explained, the
Court is constrained to rule in favor of BPI Family and hereby dismiss SMMCI’s
Rehabilitation Petition. With this pronouncement, it is now unnecessary to delve on the
other ancillary issues raised herein.
WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2012 and the
Resolution dated January 18, 2013 of the Court of Appeals in CA-G.R. SP No. 121004
upholding the Order dated August 4, 2011 of the Regional Trial Court of Imus, Cavite,
Branch 21 approving the Rehabilitation Plan of respondent St. Michael Medical Center,
Inc. (SMMCI) are hereby REVERSED and SET ASIDE. Accordingly, SMMCI’s Petition
for Corporate Rehabilitation is DISMISSED.
SO ORDERED.
G.R. No. 180036 January 16, 2013
SITUS DEV. CORPORATION, DAILY SUPERMARKET, INC. and COLOR
LITHOGRAPH PRESS, INC., Petitioners,
vs.
ASIATRUST BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK
AND TRUST COMPANY and CAMERON GRANVILLE II ASSET MANAGEMENT,
INC. ("CAMERON"), Respondents.
RESOLUTION
SERENO, CJ.:
For resolution is the Motion for Reconsideration1 of our 25 July 2012 Decision2 in the
case involving petitioners herein, Situs Development Corporation, Daily Supermarket,
Inc. and Color Lithographic Press, Inc.
Most of the arguments raised by petitioners are too insubstantial to merit our
consideration or are merely rehashed from their previous pleadings and have already
been passed upon by this Court. However, certain issues merit a brief discussion, to
wit:
1. That the properties belonging to petitioner corporations’ majority
stockholders may be included in the rehabilitation plan pursuant to
Metropolitan Bank and Trust Company v. ASB Holdings, Inc.3 (the Metrobank
Case);
2. That the subject properties should be included in the ambit of the Stay Order
by virtue of the provisions of the Financial Rehabilitation and Insolvency Act
of 2010 (FRIA), which should be given a retroactive effect; and
3. That Allied Bank and Metro Bank were not the owners of the mortgaged
properties when the Stay Order was issued by the rehabilitation court.
On the first issue, petitioners incorrectly argue that the properties belonging to their
majority stockholders may be included in the rehabilitation plan, because these
properties were mortgaged to secure petitioners’ loans. In support of their argument,
they cite a footnote appearing in the Metrobank Case, which states:4
In their petition for rehabilitation, the corporations comprising the ASB Group of
Companies alleged that their allied companies … have joined in the said petition
‘because they executed mortgages and/or pledges over their real and personal
properties to secure the obligations of petitioner ASB Group of Companies. Further,
(they) agreed to contribute, to the extent allowed by law, some of their specified
properties and assets to help rehabilitate petitioner ASB Group of Companies.’ (Rollo,
pp. 119-120)
A reading of the footnote shows that it is not a ruling on the propriety of the joinder of WHEREFORE, the Court resolves to DENY WITH FINALITY the instant Motion for
parties; rather, it is a statement of the fact that the afore-quoted allegation was made Reconsideration for lack of merit. No further pleadings shall be entertained. Let entry
in the petition for rehabilitation in that case. of judgment be made in due course.

On the second issue, petitioners argue that the trial court was correct in including the SO ORDERED.
subject properties in the ambit of the Stay Order. Under the FRIA, the Stay Order may
now cover third-party or accommodation mortgages, in which the "mortgage is
necessary for the rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver."5 The FRIA likewise provides that its
provisions may be applicable to further proceedings in pending cases, except to the
extent that, in the opinion of the court, their application would not be feasible or would
work injustice.6

Sec. 146 of the FRIA, which makes it applicable to "all further proceedings in
insolvency, suspension of payments and rehabilitation cases x x x except to the extent
that in the opinion of the court their application would not be feasible or would work
injustice," still presupposes a prospective application. The wording of the law clearly
shows that it is applicable to all further proceedings. In no way could it be made
retrospectively applicable to the Stay Order issued by the rehabilitation court back in
2002.

At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim
Rules of Procedure on Corporate Rehabilitation (the "Interim Rules"). Under those
rules, one of the effects of a Stay Order is the stay of the "enforcement of all claims,
whether for money or otherwise and whether such enforcement is by court action or
otherwise, against the debtor, its guarantors and sureties not solidarily liable with the
debtor."7 Nowhere in the Interim Rules is the rehabilitation court authorized to suspend
foreclosure proceedings against properties of third-party mortgagors. In fact, we have
expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto Azul Land,
Inc.8 that the issuance of a Stay Order cannot suspend the foreclosure of
accommodation mortgages. Whether or not the properties subject of the third-party
mortgage are used by the debtor corporation or are necessary for its operation is of no
moment, as the Interim Rules do not make a distinction. To repeat, when the Stay Order
was issued, the rehabilitation court was only empowered to suspend claims against the
debtor, its guarantors, and sureties not solidarily liable with the debtor. Thus, it was
beyond the jurisdiction of the rehabilitation court to suspend foreclosure proceedings
against properties of third-party mortgagors.

The third issue, therefore, is immaterial.1âwphi1 Whether or not respondent banks had
acquired ownership of the subject properties at the time of the issuance of the Stay
Order, the same conclusion will still be reached. The subject properties will still fall
outside the ambit of the Stay Order issued by the rehabilitation court.

Since the subject properties are beyond the reach of the Stay Order, and since
foreclosure and consolidation of title may no longer be stalled, petitioners’ rehabilitation
plan is no longer feasible. We therefore affirm our earlier finding that the dismissal of
the Petition for the Declaration of State of Suspension of Payments with Approval of
Proposed Rehabilitation Plan is in order.